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Hungary could continue to run a budget deficit of around 5% of GDP, Prime Minister Viktor Orban said on February 6, signalling a potential shift from earlier plans to reduce the shortfall to 4%.
Speaking in his weekly interview on public radio, Hungary's veteran leader, trailing in most polls ahead of the April 12 election, said the economy had operated with a roughly 5% deficit last year and this year and could do so again next year. He said such a level would place Hungary in the middle of the European range and would be accepted by investors, noting that the country retains investment-grade credit ratings.
Orban acknowledged that running a surplus would be preferable, but said Hungary had "carried financial burdens for decades due to historical factors." He added that investors tolerate the current deficit level, allowing the country to finance itself on the markets.
Financial website Portfolio.hu asked the Economy Ministry for clarification on whether the 5% figure cited by Orban is the official target for the 2027 budget planning, which is set to start in April, most likely after the elections, if Fidesz remains in power.
Both Reuters and Bloomberg interpreted the prime minister's remarks as referring to 2027, it adds. If confirmed, a 5% deficit target would mark a departure from earlier commitments to consolidate Hungary's finances and would be the fourth consecutive year of budget overshoot with a gap of at least 5%, Portfolio.hu notes.
This would keep borrowing needs elevated and could increase pressure on public debt at a time when credit rating agencies are expected to closely monitor Hungary's fiscal trajectory in upcoming reviews.
Debt service costs hit a record HUF4.2 trillion (€11.1bn) last year, up HUF600bn from the previous year and exceeding the government target by HUF300bn. Interest payments on public debt have increased almost fourfold since the pandemic.
So far this year, Hungarian assets have staged a strong rally, with the forint trading at a two-year high against the euro, the stock market breaking record after record, and yield spreads on government bonds narrowing to multi-year lows. The positive sentiment is fuelled by expectations of a Tisza Party victory in the elections and Hungary's return to the mainstream of European politics, as well as by the National Bank's hawkish policy and high real interest rates.
The reasons behind the projected revision of the 2027 deficit remain unclear, Portfolio.hu observed. Either this signals a reluctance to make deeper fiscal adjustments after the election, or it could just as well foreshadow additional pre-election commitments yet to be unveiled.
Unlike in the 2022 campaign, when households were reimbursed for their PIT payments, the pillars of Fidesz's election spending will involve long-term fiscal commitments, such as lifelong personal income tax exemptions for all mothers with at least two children, to be rolled out gradually, or the preferential mortgage loans, which will have a fiscal impact in the long run, unless phased out.
Economy Minister Marton Nagy told online economic portal VG in a podcast interview on the same day that the impact of the government's income transfers, including extra pensions, tax breaks for mothers, and wage increases, will total 2% of the GDP and around HUF1 trillion, or 1% of GDP, will reach households by February.
When asked whether the government could promise no austerity if Fidesz wins the election, Nagy said the word "austerity" is not in the government's vocabulary; it was the policy tool of previous left-wing cabinets. Lower interest rates could reduce debt service costs, which offers a wider room for manoeuvre, he added.
Nagy also said that the government's economic policy does not pursue growth at any cost, with family support measures and demographic priorities taking precedence, comments widely scrutinised by independent media in light of major economic projections that have been missed in recent years.
The government aims to build a family- and work-based society, while maintaining domestic ownership in strategic sectors to prevent profits from flowing abroad, he said. In the business sector, efforts have focused on maintaining Hungarian ownership in strategic industries to "prevent foreign companies from capturing the benefits of growth", which he said would produce "exclusive growth" with limited national benefit.
Hungary has always followed its own path, supported by political stability, which gives businesses and families clarity on economic policy. The government is not afraid to intervene in markets as its ability to self-correct is often limited, he said, then went on to defend the latest unorthodox measure, launched last spring, which set a 10% margin over procurement prices of retailers, falsely claiming that the measure had not been criticised.
Nagy acknowledged disappointment over last year's weak growth and cited energy price shocks and external economic conditions, particularly in Germany, as the main culprits.
He said GDP cannot exceed 2-3% until the German economy and auto industry recover, and that real wages and domestic consumption remain supportive of this year's growth.
When asked about the suspension of EU funds, Nagy said Hungary has access to €12bn in cohesion funds, but loans and grants under the RRF remain frozen due to conditions set by the EU. Nagy falsely claimed that the EU called on Hungary to abolish the 13-month pension and utility subsidy for households as a condition for accessing the funds, saying the country would not compromise on key welfare programmes.
Hungary’s current economic policy is unsustainable, Eva Palocz, CEO of the independent research institute Kopint-Tarki, told 24.hu, after the interview, criticising the cabinet for ignoring dissenting views and relying on policies that have reached a dead end.
Palocz highlighted the sharp decline in investment since late 2022 as a key factor for Hungary's economic woes, which she attributed to high levels of centralisation and corruption. Government-funded projects have failed to boost productivity. The pre-election spending binge will require a fiscal correction in the second half, she added.
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