Poland's budget deficit for 2022 was much lower than expected at 12.4 billion zlotys ($2.80 billion), the prime minister said on Monday, as emerging Europe's largest economy has so far avoided a recession after being hit by the fallout from the war in Ukraine.

"Our budget deficit was supposed to amount to about 30 billion zlotys (in 2022)," Mateusz Morawiecki told a news conference, referring to the government's 2022 budget forecast. "However, I can say today that the deficit for 2022 is 12.4 billion zlotys, which is much better than economists predicted."

Poland, however, has been rocked by the war unfolding to its east and the soaring inflation it has unleashed, and as gross domestic product (GDP) shrank in the fourth quarter of 2023, the country could follow regional peers Hungary and the Czech Republic into a technical recession if GDP contracts again in the current quarter.

The general government deficit for 2022, which also includes spending by local authorities, was around 3% of gross domestic product, Morawiecki said.

According to the 2023 budget the deficit should increase to 68 billion zlotys, with a general government deficit of 4.5% of GDP. The budget pencilled in a debt to GDP ratio of 53.3%.

However, Morawiecki said that in 2023 debt to GDP would be 49-50%.

Poland's ruling nationalists Law and Justice (PiS) have faced criticism for shifting some spending off-budget, a practice the International Monetary Fund and credit rating agencies say weakens oversight.

PiS have rejected the criticism, saying that raising money for the state's response to the COVID-19 pandemic and to strengthen the military through bonds issued by the state fund and development bank allowed it to respond quickly.

It argues that all spending increases are funded by improved tax collection.

Morawiecki said that to counter such criticism the government would prepare an act that would show the consolidation of public finances.

"In order to streamline the financial system and emphasise that we really have nothing to hide, we will prepare an act that will show the consolidation of public finances in subsequent settlement periods," he said. ($1 = 4.4242 zlotys) (Reporting by Alan Charlish and Pawel Florkiewicz; Editing by Susan Fenton)