Brussels warns about Hungary's debt trajectory

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 threatens to worsen significantly—unless the government implements substantial fiscal adjustments.

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

Public debt stood at 74.9 percent of GDP at the end of 2025—the highest level since 2021 and the second consecutive year of rising debt. Since 2020, nominal debt has nearly doubled.

Debt-to-GDP ratio on a steep upward trajectory

Without a change in course, the situation is likely to worsen further. According to DSM, if fiscal policy remains unchanged, the debt-to-GDP ratio would rise to 102.5 percent by 2036. 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 trend 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

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

Gross financing needs 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 worsens further: under less favorable interest rate and growth conditions, the debt-to-GDP ratio could rise to over 110 percent by 2036.

Significant need for reform

The Commission’s long-term sustainability indicator (S2) shows that, starting in 2027, a sustained improvement in the structural primary balance of 6.7 percentage points of GDP would be necessary to stabilize the debt-to-GDP 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 calls for a gradual reduction of the debt-to-GDP ratio to 50 percent, this rule has been repeatedly suspended under a state of emergency in effect since 2015.

The Commission emphasizes that there is currently no immediate threat of a financial crisis. 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