Monetary policy in CEE remains restrictive

Only Slovakia and Romania, which have been running the largest fiscal deficits in CEE, will deliver more substantial fiscal consolidation, primarily based on revenue measures. Romania will likely deliver some tax increases after the presidential election. The Hungarian primary balance is relatively solid, so if it is preserved ahead of next year’s elections, lower interest expenditures should automatically result in deficit reduction. Poland prioritized higher military spending and drawing loans from the RRF over consolidation, which will be postponed to 2026. In 2025, public debt ratios to GDP are set to stabilize or even decline in all CEE countries except for Poland, Romania and Slovakia. Those countries are facing the largest fiscal challenges in the next few years.

Croatia and Hungary are facing the largest rollover needs, with retail bonds being a significant portion of short-term debt. Despite relatively small rollover needs, Poland will face the highest gross financing needs among CEE countries. Net issuance will be inflated by a higher cash based central state deficit due to the repayment of debt by the Polish Development Fund and the Covid-19 Fund. Municipality reform and high military expenses will demand more borrowing compared to what the accrual deficit would suggest.

Government bond yields have been stressed by global uncertainty. More relief should come with more clarity on tariffs and further monetary easing. Central banks in region are expected to cut rates by 75-100bp in 2025, but real interest rates will remain restrictive.

For details on fiscal stance, financing needs and debt redemption profile for each country, please check specific country section in the report.