Poland offers a striking case study. Confronted with the immediate threat posed by Russia after the invasion into Ukraine, Warsaw faced the need to rearm at unprecedented speed and scale. Traditional budget channels were insufficient. To bridge the gap, the government established the Armed Forces Support Fund, operated by Bank Gospodarstwa Krajowego (BGK), Poland’s national development bank.
BGK created an innovative financing mechanism, combining state guarantees with international debt instruments, to secure cost-effective, large-volume funding for defense contracts. By mid-2025 BGK had raised the equivalent of over 172 billion złoty (approximately €40 billion) to finance contracts with suppliers from the United States, South Korea, the United Kingdom, Sweden and Norway.
BGK created an innovative financing mechanism, combining state guarantees with international debt instruments, to secure cost-effective, large-volume funding for defense contracts.
Incorporating market-based financing into defense expenditure necessitates close coordination with the State Treasury and a proactive investor relations strategy. BGK has developed significant expertise in this area, working closely with the Ministry of Finance to align bond issuance strategies and investor communications. This includes joint non-deal roadshows and regular engagement with major investors. By establishing yield curves in złoty, euros and the U.S. dollar through the issuance of highly liquid benchmark securities, BGK enhances its ability to flexibly supplement financing defense expenditure with bond market instruments.
The fund’s design offers important lessons for Europe. It blends flexibility, sovereign backing, and transparency while drawing on global financial markets. BGK has relied extensively on export credit agencies in supplier countries, ensuring financing conditions aligned with the payment structures of Poland’s contracts. This has enabled Warsaw not only to secure rapid delivery of equipment but also to negotiate significant offsets — embedding parts of production and technology transfer inside Poland. This focus on cost-effectiveness led to financing arranged at rates comparable to — or even below — State Treasury bonds, a result previously thought unattainable by any bank, including state development institutions.
Two recent agreements illustrate the model’s significance
In July 2025 BGK signed a new framework with the Export-Import Bank of Korea and Korea Trade Insurance Corporation, extending its capacity to finance Poland’s acquisition of Korean heavy equipment. These contracts have gone beyond simple purchase orders. They combine direct financing, credit guarantees and technology transfer, ensuring that segments of the supply chain — from components to maintenance hubs — are localized in Poland. This strengthens both Poland’s and the EU’s defense autonomy, while anchoring South Korea as a trusted industrial partner.
