MNI INTERVIEW: Hungary Deficit To Exceed 4% GDP in 2026 - Loga

Hungary’s fiscal deficit may reach 4.5% of GDP in 2026 rather than the previously projected 4%, though tax breaks, price caps on key goods and mortgages and big public-sector wage increases will have only limited impact on public finances, a senior government official told MNI. (See MNI EM INTERVIEW: NBH Rates On Hold Until At Least April - Ex-Gov)

“It is possible that the 2026 deficit will settle nearer 4.4-4.5% rather than the previously projected 4%,” State Secretary for Economic Strategy, Financial Resources, Industry and Macroeconomic Analysis Mate Loga said in an interview. “Hungary is pursuing a relatively tight fiscal stance with the objective of maintaining a sustainable debt trajectory. We have sought to avoid further debt accumulation, and our debt dynamics compare favourably with several regional peers.”

Budapest wants to preserve its investment grade rating following downgrades earlier this year, Loga said, and is committed to a “firm, disciplined fiscal approach” ahead of a hotly contested general election in the spring.

Interest rate expenditure remains the central challenge in Hungary’s public finances, he said, adding that one option would be to raise the foreign-currency share of debt to lower average funding costs – but only if that aligns with the longer-term risk strategy.  

“On market funding, our plan is flexible. Should conditions warrant – or attractive windows open – we could increase borrowing next year. At present, additional issuance is not strictly necessary.”

CREDIT RATING

The government is engaged in “regular and substantive” exchanges with ratings agencies with no significant rating developments expected before April’s poll.

“Agencies are understandably seeking more frequent dialogue to assess Hungary’s fiscal and monetary position. We respect their independence, our only caution is that market narratives around the timing and magnitude of EU funds are sometimes weighted more heavily than our base-case assumptions. Our aim is to preserve our current investment-grade standing.”

The government’s announcement in February that mothers of two or three children will be exempt from income tax is part of the ruling Fidesz party’s long-standing plan to make Hungarian society work-based rather than welfare-based, Loga said.

“We have been steadily reducing taxes on labour to support workers and enterprises alike, and we have now reached the point where we must consider how best to further facilitate and incentivise employment. An implementation plan is already in place, and thanks to the gradual introduction of each measure the annual budgetary impact is very limited.”

Public sector wages are set to increase by 15% from January, with the minimum wage expected to rise by around 13%.

Such moves - identified by the central bank as a potential source of higher inflation and labour market adjustment – will take Hungarian wages closer to Western Europe’s, Loga said, while encouraging domestic firms to enhance competitiveness and increase productivity.

“The government is consistently supporting firms by reducing tax and administrative burdens, making it easier for them to adjust to rising wages. In essence, we are providing a counterbalance to reach an equilibrium that works for all parties.”

PRICE CAPS

In March the government announced mandatory and voluntary caps on price margins for certain goods, and their scope has since been expanded and their duration extended to the end of February 2026.

The policy, credited by the National Bank of Hungary with having a “significant” diminishing effect on inflation, albeit at the cost of strong corporate repricings elsewhere, has helped to reinforce and anchor lower inflation expectations, Loga said, who stressed that the measures are temporary.

“An explicit exit strategy is required. Hungary is neither the first nor the only country to apply price caps, however, maintaining them for too long can generate wider market turbulence.”

Saving rates are amongst Europe’s highest, yet household consumption as a share of GDP is relatively low, with analysts citing weak consumer confidence to help explain the economy’s sluggish performance. (See MNI EM INTERVIEW: Hungary Outlook Stagflationary - Ex-NBH's Reiff)

Loga said households are exercising their right to decide what they do with their disposable income. “Instead of buying that third hamburger they don’t really want to, so to speak, they’re saving a lot of money, they're buying mortgaged properties, they're buying government bonds, and so on. There's an upward trend in consumption, but it's at an equilibrium level. Meanwhile, the external position of Hungary is also in positive territory, which means the economy is not overheated.”