Hungary’s fiscal position has improved compared with recent years, but remains a key source of vulnerability. The headline deficit narrowed to 4.9% of GDP in 2024, reflecting a sizable fiscal adjustment driven mainly by cuts to public investment and current spending. Despite this effort, the public debt ratio increased slightly, partly due to exchange-rate effects and still-elevated financing needs. In 2025 and 2026, the fiscal deficit is expected to remain high at around 5% of GDP. 

Debt dynamics remain sensitive to macroeconomic and financial conditions. Financing needs are elevated by regional standards and interest expenditures remain high, limiting fiscal flexibility. The debt trajectory is particularly exposed to exchange-rate movements, due to the relatively large share of foreign-currency debt, as well as to shifts in market sentiment that could raise risk premia and refinancing costs. 

External financing pressures are partially mitigated by a stronger external balance. Hungary recorded a current account surplus of around 2.2% of GDP in 2024, supported by weak investment and an improved terms of trade, while foreign exchange reserve coverage remains adequate. However, delayed EU fund disbursements continue to weigh on fiscal and investment capacity as a significant share of cohesion and recovery funds remains suspended or slow to be absorbed due to unresolved governance issues. 

Market perceptions of Hungarian sovereign risk have remained broadly stable, but underlying vulnerabilities persist. The domestic banking sector holds a large share of government securities, strengthening sovereign–bank linkages and increasing the potential for fiscal stress to spill over into the financial system under adverse scenarios. Business insolvencies declined in 2025 (‑9% y/y) and are expected to fall further by ‑22% y/y in 2026.

Structural weaknesses continue to weigh on Hungary’s competitiveness and medium-term growth potential. Productivity performance remains weak relative to regional peers, reflecting deep-seated firm-level constraints. Market structures are among the least competitive in the EU, with high concentration, low firm entry and exit rates and barriers to factor mobility limiting dynamism. These issues are reinforced by frequent regulatory changes, extensive state involvement in key sectors and the widespread use of sector-specific measures, which reduce predictability and discourage private investment. 

Access to risk capital remains limited, constraining the scale-up of innovative and high-growth firms. While public programs have expanded financing options, private equity and venture capital markets remain underdeveloped compared with peers, reducing incentives for innovation-led productivity gains. As a result, productivity-enhancing investment has lagged behind other CEE economies. 

Energy-related vulnerabilities further undermine competitiveness. Hungary remains one of the most energy-intensive economies in Europe, with reliance on subsidised fossil fuels increasing exposure to price shocks and weighing on the green transition. While diversification and renewable investment have progressed, the energy mix remains insufficiently flexible to support sustained competitiveness gains. 

Governance challenges remain a central structural risk. Persistent concerns related to rule of law, corruption and regulatory transparency continue to weigh on business confidence and have delayed access to EU funds, constraining public and private investment. Limited progress on governance reforms risks prolonging these constraints and reinforcing Hungary’s productivity gap relative to peers. 

Political risks have increased ahead of the April 2026 parliamentary elections, which could prove the most consequential in Hungary in more than a decade. After nearly 15 years of uninterrupted rule by Prime Minister Viktor Orbán’s Fidesz party, the political landscape has shifted with the rapid rise of the opposition Tisza party, led by former Fidesz insider Peter Magyar. Recent polling points to a much tighter race than in previous election cycles, raising the prospect of a change in government for the first time since 2010. 

The rise of Tisza reflects growing voter dissatisfaction, particularly regarding governance standards, perceived corruption and public service quality, alongside broader anti-incumbent fatigue. While Fidesz has stabilised support through targeted policy measures, political uncertainty is materially higher than in past elections, increasing the risk of policy volatility. 

A potential change in government could have significant economic implications, notably through a possible reset in relations with the EU. Improved ties could facilitate the gradual unlocking of frozen EU funds, offering upside to investment and growth. Despite the electoral calendar, pre-election fiscal loosening has so far been limited, though risks of additional slippage remain as the vote approaches.