Brussels warns against Hungary's debt path

The European Commission is sounding the alarm: in its latest Debt Sustainability Monitor (DSM), it paints an increasingly critical picture of Hungary's public finances. In the short term, financing conditions are still manageable, but in the medium and long term, the debt situation is likely to worsen significantly unless the government makes substantial budgetary adjustments.

For 2026 and 2027, the Commission expects gross financing needs of around 15 percent of gross domestic product. Hungary has recently been able to successfully place government bonds and retains its investment-grade status. Nevertheless, investors are demanding a significant risk premium: at the end of 2025, the yield premium on ten-year Hungarian bonds compared to German government bonds was 408 basis points.

At the end of 2025, public debt stood at 74.9 percent of GDP—the highest level since 2021 and the second consecutive year of rising debt ratios. Nominal debt has nearly doubled since 2020.

Debt ratio on a steep trajectory

Without a change of course, the situation is likely to worsen. According to the DSM, the debt ratio would rise to 102.5 percent of GDP by 2036 if fiscal policy remained unchanged. Experts expect the pace to accelerate as early as 2028: from 76.7 percent in 2028, the ratio could climb to 90 percent by 2033 and exceed the 100 percent mark a few years later.

This development is driven by a structurally negative primary balance and an unfavorable "snowball effect": interest costs are growing faster than the combined effect of inflation and real economic growth.

Interest burden as a key risk factor

The rising debt service is particularly problematic. While inflation and growth provide short-term relief, they lose momentum in the medium term. The Commission expects that interest payments alone could increase the debt ratio by up to 6.6 percentage points by 2036.

Gross financing requirements are likely to increase accordingly – from 13.7 percent of GDP in 2024 to 21.3 percent in 2036. This reflects both higher refinancing costs and persistent budget deficits.

In stress scenarios, the picture becomes even more dire: under less favorable interest rate and growth conditions, the debt ratio could rise to over 110 percent by 2036.

Significant need for reform

The Commission's long-term sustainability indicator (S2) shows that, from 2027 onwards, a permanent improvement in the structural primary balance of 6.7 percentage points of GDP would be necessary to stabilize the debt ratio. A large part of this adjustment requirement is attributable to age-related expenditures such as pensions, healthcare, and long-term care.

Although Hungary's constitution provides for a gradual reduction of the debt ratio to 50 percent of GDP, this rule has been repeatedly suspended under a state of emergency that has been in force since 2015.

The Commission emphasizes that there is currently no acute financial crisis looming. However, without structural reforms, the debt dynamics will not stabilize on their own. Hungary faces a decade of growing debt burdens and increasing financing pressures.

This article was produced in cooperation with our partner bne intelliNews.