In-depth review 2025 : Hungary.
Date: 2025-05-14
Institutions: Directorate-General for Economic and Financial Affairs
Subjects: Hungary, euro area, financial stability, financial supervision, gross domestic product, household consumption, inflation, labour market, loan, macroeconomics, wage cost

ISSN 2443-8014 (online)

In-Depth
Review
2025 

Hungary

INSTITUTIONAL PAPER 312 | MAY 2025

EUROPEAN ECONOMY

Economic and 
Financial Affairs

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European Commission  
Directorate-General for Economic and Financial Affairs  

In-Depth Review 2025 

Hungary 

EUROPEAN ECONOMY                                                                                    Institutional Paper 312 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(EU)  No  1176/2011  on 

This  in-depth  review  presents  the  main  findings  of  the  Commission’s  staff 
assessment  of  macroeconomic  vulnerabilities  for  Hungary  for  the  purposes  of 
Regulation 
the  prevention  and  correction  of 
macroeconomic imbalances. It provides technical input to the Commission for the 
Communication “European Semester – 2025 Spring Package” that will set out the 
Commission’s  assessment  as  to  the  existence  of  imbalances  or  excessive 
imbalances in Hungary. That Communication will be published in June 2025. 

 
 
 
Hungary

In-Depth Review 2025

CONTENTS 

1. 

2. 

INTRODUCTION 

Cost competitiveness 

ASSESSMENT OF MACROECONOMIC IMBALANCES 
2.1.  Government sector 
2.2. 
2.3. 
2.4.  Housing markets 
2.5. 
Financial sector 
Conclusions 

External sector 

ANNEX 1 - SLOWDOWN OF INVESTMENT AND EXPORT PERFORMANCE 

ANNEX 2 - MINIMUM WAGE DEVELOPMENTS AND COMPETITIVENESS 

ANNEX 3 - BANK-SOVEREIGN NEXUS TRENDS, POLICIES, AND RISKS 

1 

2 
2 
4 
5 
6 
7 
10 

16 

20 

22 

 
 
 
 
 
 
1. INTRODUCTION 

This in-depth review (IDR) analyses the evolution of Hungary’s vulnerabilities related to 
cost competitiveness, external accounts, housing, and the financial sector. This year’s IDR, 
which follows the 2025 Alert Mechanism Report (AMR) published in December 2024, assesses the 
persistence  or  unwinding  of  the  vulnerabilities  identified  last  year,  potential  emerging  risks,  and 
relevant policy progress and policy options that could be considered for the future.(1) 

Vulnerabilities are analysed at a time when economic growth in 2024 remained sluggish 
stemming  from  uncertainties  surrounding  domestic  policies  and  external  demand. 
Following a contraction of 0.9% in 2023, GDP growth recovered to 0.5% in 2024, driven primarily 
by  consumption.  However,  investment  and  exports  remained  subdued  due  to  uncertainty, 
deteriorating business sentiment and weak demand from Hungary's trading partners. GDP growth is 
projected to accelerate to 1.8% in 2025 and 3.1% in 2026, with consumption expected to remain 
the key driver, supported by strong real income growth.(2) The economic outlook remains sensitive 
to  energy  prices,  uncertainties  in  the  automotive  industry,  and  global  investor  sentiment.  Debt 
servicing costs and gross financing needs are set to remain high.  

Inflation has eased but remains elevated due to increasing demand, strong wage growth 
and currency depreciation. Headline inflation declined significantly from 17.0% in 2023 to 3.7% 
in  2024,  as  the  impact  of  earlier  energy  and  food  price  increases  and  supply  chain  bottlenecks 
dissipated.  However,  inflation  rebounded  in  2024  with  HICP  inflation  reaching  5.7%  in  February 
2025. Moreover, core inflation remained high at 5.9% in 2024 even if it more than halved from the 
previous year.(3) Nominal wage growth remained strong, reflecting an adjustment in real wages in 
the aftermath of high inflation in previous years.  

(1)  European  Commission  (2024),  Alert  Mechanism  Report  2025,  Communication  from  the  Commission  to  the  European 
Parliament,  the  Council  and  the  European  Economic  and  Social  Committee,  COM(2024)  702  final;  and  European 
Commission (2024), Alert Mechanism Report 2025, Staff Working Document, SWD(2024) 700 final. 

(2)  All  forecast  data  used  in  the  IDR  come  from  the  Commission  Autumn  2024  Forecast  (European  Economy,  Institutional 
Paper 296), unless stated otherwise, in order to ensure the coherence of the various figures and calculations. The cut-off 
date for the data for the preparation of this IDR was 24 March 2025. Actual outturn data that have become available after 
the Autumn Forecast, and before the cut-off date for the IDR, are mentioned. 
Input-output  analysis  indicates  that  over  the  period  2020-2024,  foreign  demand  contributed  0.1  pps.  to  Hungary’s 
cumulated GDP growth of 6.4%; conversely, due to its limited size, the Hungarian domestic demand had little impact on the 
EU growth. Over that same period, imported value-added inflation accounted for 5.2 pps. of the 52.3% cumulated inflation. 
See European Commission Institutional Paper 2025 (forthcoming) – “Economic spillovers and financial linkages in the EU”. 

(3) 

1 

 
 
 
 
 
2. ASSESSMENT OF MACROECONOMIC IMBALANCES 

In  recent  years,  sharp  cost  pressures  have  weighed  on  Hungary’s  competitiveness,  and 
government  financing  needs  and  debt  servicing  costs  have  remained  significant.  The 
budget deficit declined in 2024, but it is set to remain elevated in 2025-26 and the reduction in the 
government  debt  ratio  has  stalled.  Inflationary  pressures  remain  persistent  while  the  recovery  is 
slow  and  subject  to  downside  risks.  External  financing  risks  have  been  mitigated  by  favourable 
developments in the terms of trade and a decline in investment, which have increased the current 
account surplus. In the financial sector, the risks that arose during the economic downturn in 2023 
have  receded,  and  the  sector  is  characterised  by  ample  capital  and  liquidity  buffers  and  a  solid 
credit  portfolio.  House  prices  picked  up  in  2024,  on  the  back  of  increased  lending  after  it  had 
markedly but briefly moderated, but housing undersupply remains an issue.  The policy mix remains 
broadly unchanged.  Monetary policy  has been  tight, but its transmission to the  real  economy  has 
been weakened by government interventions. Fiscal targets and commitments are not fully backed 
by detailed measures over the medium-term. 

2.1.  Government sector 

Assessment of gravity, evolution and prospects of vulnerabilities 

The budget deficit decreased in 2024 but is set to remain elevated in 2025-26. According 
to the central bank’s preliminary financial account data, the budget deficit is estimated at 4.8% of 
GDP  in  2024.(4)  The  deficit  narrowed  significantly  from  6.7%  of  GDP  in  2023,  but  was  slightly 
higher than the government’s target of 4.5% of GDP.(5) The Commission’s Autumn 2024 Forecast 
projected the headline deficit to remain elevated at 4.6% of GDP in 2025 and 4.1% in 2026. Recent 
policy announcements risk pushing the deficit higher than previously forecast. 

The  government  debt  ratio  is  set to  decrease slowly  while  debt-servicing  costs  remain 
high.  The  general  government  debt-to-GDP  ratio increased  to  73.6%  of  GDP  in  2024  due  to the 
large  deficit,  a  revaluation  of  the  currency-debt  due  to  the  weakening  of  the  forint  and  the 
acquisition  of  the  Budapest  airport.  Elevated  budget  deficits  and  lower  nominal  GDP  growth  are 
expected to limit debt reduction in the medium term. Spreads between Hungarian government bond 
yields and German government bond yields stand above 400 bps and are the second highest in the 
EU. Debt-servicing costs are projected to remain the highest in the EU, with the implicit interest rate 
on government debt reaching close to 6% in  2025-26.  Gross financing  needs  amounted to some 
16% of GDP on average over 2023-2024 and are expected to remain at around 14% of GDP over 

(4)  The  preliminary  financial  accounts  use  estimates  instead  of  outturn  data  for  transfers  from  the  EU  and  on  the  accrual 
accounting  of  tax  revenues.  Therefore,  the  actual  ESA  deficit  might  differ  slightly  from  these  figures.  See:  MNB  (2025), 
Preliminary 
financial  accounts  of  general  government  and  households  2024  Q4,  Magyar  Nemzeti  Bank 
(statisztika.mnb.hu/sw/static/file/pszla-2024q4e-en.pdf) 

(5)  The 2024 budget adopted in Spring 2023 set the deficit target at 2.9% of GDP and was revised to 4.5% of GDP in the 

Convergence Programme 2024-2028 submitted to the European Commission in April 2024. 

2 

 
 
 
 
 
2. Assessment of macroeconomic imbalances 

2025-2026  (see  Box  2.2).  The  debt  sustainability  analysis  indicates  that  risks  to  fiscal 
sustainability are overall high in the medium term (see Box  2.1). 

Assessment of MIP relevant policies  

Hungary’s fiscal consolidation in 2024 was primarily driven by lower spending on energy 
subsidies  and  cuts  in  public  investment.  Since  2022,  large  deficits  are  explained  by  costly 
measures to mitigate the impact of high energy prices and other discretionary spending measures 
(see  the  2023  and  2024  In-Depth  Reviews  for Hungary)(6),  a  rising  interest  burden  owing  to  very 
high financing costs, and shortfalls in tax revenue due to weak GDP growth. A moderation in energy 
prices, cuts in public investments and revenue from taxes levied in the energy, financial and retail 
sectors  helped  decrease  the  deficit  in  2024.  Still,  other  categories  of  expenditure,  including 
generous housing subsidies and largely untargeted preferential lending schemes to households and 
SMEs,  continue  to  exert  pressure  on  public  finances.  With  the  adoption  of  the  2025  budget  in 
November 2024, the government unveiled a 21-point Economic Policy Action Plan, featuring further 
stimulus  measures,  which  are  set  to  be  offset  by  tax  increases,  notably  the  higher  financial 
transaction  levies,  a  modified  windfall  tax  on  banks,  and  hikes  in  excise  duties.  However,  the 
recently announced personal income tax (PIT) exemption for mothers with two children is estimated 
to  decrease  tax-to-GDP  ratio by  around  1%  of GDP  by  2029  (see  Table  A).  In  2025  and  beyond, 
permanent fiscal measures, both on the revenue and expenditure side, would be needed to ensure 
that fiscal targets are achieved (see Box 2.2).  

In  its  medium-term  fiscal-structural  plan,  Hungary  commits  to  a  net  expenditure 
growth(7) path but the government does not specify policy measures to achieve it. In its 
plan, Hungary commits to a net expenditure growth that does not exceed  4.3% in  2025,  4.0% in 
2026,  3.9%  in  2027  and 3.7%  in  2028.(8)  According to  the plan,  general  government  debt  would 
gradually  decrease  from  74%  of  GDP  in  2024  to  68.2%  of  GDP  in  2028  (the  end  of  the  fiscal 
adjustment period). The plan does not include a fully-fledged and quantified fiscal strategy. 

There are risks to the achievement of fiscal targets in the short and medium term. The 
2025 budget law, adopted by the Parliament on 20 December 2024, sets the deficit target at 3.7% 
of  GDP.  However,  as  also  pointed  out  by  the  Hungarian  Fiscal  Council,  there  are  risks  to  the 
government's  projections,  stemming  from  optimistic  GDP  and  investment  forecasts,  spending 
pressures  due  to  high  inflation,  and  the  uncertain  external  outlook.(9)  Recent  deficit-increasing 
announcements coupled with limited progress in absorbing EU funds, increase uncertainty and are 
likely to negatively impact confidence going forward.  

The  national  fiscal  framework  offers  only  limited  medium-term  orientation  and 
accountability. As discussed in the 2023 and 2024 In-Depth Reviews, Hungary’s fiscal framework 
suffers  from  weaknesses,  which  limit  budget  transparency  and  exacerbate  an  expansionary  bias. 
The  continued  early  budget  adoption  and  frequent  revisions  of  the  fiscal  targets  limit  policy 

(6)  See: European Commission (2023, 2024): In-Depth Review 2023 Hungary, In-Depth Review 2024 Hungary 
(7)  Net expenditure as defined in Article 2 of Regulation (EU) 2024/1263, namely government expenditure net of (i) interest 
expenditure,  (ii)  discretionary  revenue  measures,  (iii)  expenditure  on  Union  programmes  fully  matched  by  revenue  from 
Union  funds,  (iv)  national  expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure and (vi) one-offs and other temporary measures. 

(8)  These are also the growth rates that the Council recommended when it endorsed Hungary’s plan. The cumulative growth 
rates are calculated by reference to the base year of 2023. Council Recommendation of 18 February 2025 endorsing the 
national medium-term fiscal-structural plan of Hungary OJ C, C/2025/1707, 18.3.2025. 

(9)  Resolution  No.  6/2024.11.07.  Opinion  of  the  Fiscal  Council  on  the  draft  bill  on  the  2025  central  budget  of  Hungary. 
Accessible at: https://www.parlament.hu/documents/d/koltsegvetesi-tanacs/resolution-no-6-on-the-draft-budget-of-2025 

3 

 
2. Assessment of macroeconomic imbalances 

predictability  and  proper  accountability.(10)  According  to  the  Commission’s  fiscal  governance 
database,  Hungary’s  score  on  the  index  on  the  quality  of    medium-term  budgetary  framework 
ranks among the lowest in the EU.(11) The introduction of a ‘state of danger’, in force since 2020, 
has  lifted  the  requirement  to  publish  a  3-year  budget  plan,  as  required  by  the  Act  on  Public 
Finances,  and  has  increased  the  discretion  in  implementing  the  annual  budgets.(12)  The  mandate 
and own operational capacities of the Hungarian Fiscal Council remain limited. 

2.2.  COST COMPETITIVENESS 

Assessment of gravity, evolution and prospects of vulnerabilities 

Despite a deceleration in 2024, inflation remains elevated, driven by high wage growth 
and  strong  consumer  demand.  Consumer  prices  soared  by  35%  between  2021  and  2023, 
fuelling high wage growth. HICP average annual inflation fell to 3.7% in 2024, due to strong base 
effects related to energy and food prices and to the easing of supply chain disruptions.  However, 
inflation  has  rebounded,  with  HICP  inflation  reaching  5.7%  in  February  2025.  This  increase  was 
driven by renewed energy and food price increases, as well as elevated service price inflation and 
indirect  tax  hikes.  Underlying  inflation  pressures  have  remained  elevated,  with  HICP  inflation 
excluding  energy,  food,  alcohol  and  tobacco  averaging  5.9%  in  2024  and  the  core  inflation 
differential  between  the  euro  area  and  Hungary  remaining  one  of  the  highest  in  the  EU,  at  3.1 
percentage points (pps.) (Graph 2.1.f).  

Rising  labour  costs  have  eroded  cost  competitiveness  in  recent  years.  Unit  labour  costs 
(ULC) surged by 12% in 2024, following a 15% increase in 2023. Wage growth was also fuelled by 
a 15% minimum wage hike in December 2023 and public sector wage increases, while productivity 
remained feeble amid weak growth. Export prices in manufacturing increased by 3% in 2024, one 
of  the  highest  rises  in the  EU,  suggesting  that  Hungarian  firms  were  able to  partially  pass  rising 
costs  onto  selling  prices  within  their  value  chains.  Wage  increases  were  also  partly  absorbed  by 
firms’  reduced  profit  margins,  as  evidenced  by  the  fall  of  gross  operating  surplus  as  a  share  of 
value added to 50% in 2024 from 52% in 2023. 

Currency  depreciation  has  not  fully  offset  the  increase  in  labour  costs.  The  Hungarian 
forint depreciated by 1.6% in nominal terms against a basket of currencies in 2024, on the back of 
increased geopolitical uncertainty, and a decline in the central bank reference rate from 10.75% in 
the  beginning  of  2024  to  6.5%  by  year  end.  While  the  HICP-based  real  effective  exchange  rate 
(REER) also depreciated, the impact of nominal currency depreciation on the real exchange rate is 
expected to be mitigated in the medium term as currency depreciation also contributes to increases 
in  domestic  prices.(13)  In  contrast,  the  ULC-based  REER  appreciated  by  2.4%  in  2024,  suggesting 
that the increase in labour costs deteriorated cost competitiveness (Graph 2.1.e). 

(10)  Between  2016  and  2023,  the  draft  annual  budgets  were  submitted  by  the  government  to  the  Parliament  in  spring  and 
adopted  in  early  summer,  making  Hungary  the  only  OECD  country  to  publish  the  budgetary  projections  some  6  months 
ahead of the fiscal year concerned. The 2025 budget was adopted in December 2024, but the earlier practise is expected 
to continue. 

(11)  Accessible at: Fiscal governance database - European Commission 
(12)  The state of danger under the Article 53 of the Fundamental Law was introduced during COVID-19 pandemic and has been 
repeatedly  extended.  It  is  currently  in  force  until  18  May  2025.  Under  the  state  of  danger,  the  government  may  issue 
decrees by which it can suspend the application of certain laws, deviate from legal provisions, and take other extraordinary 
measures, which can be adopted by the parliament as laws ex post. 

(13)  An analysis shows that the pass  through of exchange rate changes to prices doubled see: Balatoni A. – Soós G. (2023), 
Változó világ, változó hatások – Az árfolyam makrogazdasági hatásai. Magyar Nemzeti Bank (in Hungarian, link here). 

4 

 
2. Assessment of macroeconomic imbalances 

Assessment of MIP relevant policies 

Tight  monetary  and  fiscal  policies  helped  to  contain  inflation  in  2024,  but  price 
pressures  are  persistent,  driven  by  high  wage  growth.  In  2024,  postponements  of 
investments and cuts in subsidies helped to lower the budget deficit. The central bank cut its base 
rate by 425 bps in 2024 in the context of lower inflation. Looking ahead, monetary conditions may 
remain  tight.  A  tight  policy  mix  can  help  further  anchor  expectations  and  contain  inflation  in  the 
medium run and could be instrumental to improve the cost competitiveness of the economy. The 
government also announced a profit margin cap on basic food products from 17 March 2025 to the 
end May 2025, which should contribute to moderate food prices.(14) Nominal and real wages growth 
in Hungary are expected to be among the highest in the EU in 2025, and further minimum wage 
increases agreed among social partners and the government are planned up to 2027 (see Annex 2). 
While Hungary has one of the lowest minimum wages in the EU, these increases, should go hand in 
hand with improvements in productivity and structural reforms in order to increase competitiveness 
and not risking fuelling inflationary pressures.(15) 

2.3.  EXTERNAL SECTOR 

Assessment of gravity, evolution and prospects of vulnerabilities 

The  current  account  surplus  increased  in  2024  due  to  declining  imports,  linked  to  a 
slowdown  in  investment  and  improvements  in  the  terms  of  trade.  The  current  account 
balance  surplus  increased  to  2.3%  of  GDP  in  Q3  2024  driven  by  favourable  terms  of  trade 
developments  and  declining  imports  which  markedly  improved  the  trade  balance.(16)  Net  energy 
imports declined by some 1.3% of GDP in 2024, thanks to lower prices and a reduction in import 
volumes  driven  by  increasing  solar  power  generation.  The  incomes  and  current  transfers  deficits 
declined  due  to  lower  interest  income  outflows.  The  current  account  balance  is  set  to  remain 
positive  and  net  external  liabilities  are  projected  to  decline  further  in  2025-26  on  the  back  of 
higher exports (Graph 2.1.a-b). Exports related to the electric vehicles (EV) industry are set to pick 
up  (see  Annex  1).  However,  increasing  imports  stemming  from  domestic  demand  are  set  to 
decrease the trade balance. Risks to external sustainability could become more prominent if export 
growth remains sluggish or if energy prices costs rise significantly. 

With a larger current and capital account surplus, net liabilities have declined below the 
prudential benchmark  in  2024.  From  a  savings investment  perspective,  the  increasing  current 
account surplus reflects higher household saving and lower private and public investment. In terms 
of financing, the current account surplus has led to foreign loan repayment and increasing reserves. 
Net  lending  vis-à-vis  the  rest  of  the  world  and  high  nominal  GDP  growth  increased  the  net 
international investment position (NIIP) to GDP ratio from -37% at the end of 2023 to -33% in Q3 
2024.  As  net  FDI  liabilities  remained  stable  at  32%  of  GDP,  the  net  international  investment 
position excluding non-defaultable instruments turned positive in 2024, standing at 4% of GDP in 
Q3-2024 (Graph 2.1.c-d). 

(14)  See Box 3-3 in MNB (2025): Inflation Report March 2025. 
(15)  See also Box 1-5 in MNB (2024): Inflation Report December 2024. 
(16)  The current account surplus is above the estimated cyclically-adjusted balance, indicating that subdued demand is a key 

factor behind the higher surplus, rather than structural factors. 

5 

 
 
2. Assessment of macroeconomic imbalances 

Assessment of MIP relevant policies 

The  external  balance  is  still  impacted  by  domestic  policies.  Fiscal  policy  measures  across 
different sectors (e.g., subsidised lending schemes, wages policies) have had a significant impact on 
demand (see Section 2.1: Government Finance and Section 2.2: Cost Competitiveness). At the same 
time,  the  sizeable  fall  in  public  investment  is  impacting  potential  GDP  growth  and  is  unlikely  to 
persist. Government  energy  subsidies  to  households  have  remained  generous,  stimulating  energy 
consumption and imports while policies to lower energy intensity and imports remain subdued.(17) 

2.4.  HOUSING MARKETS 

Assessment of gravity, evolution and prospects of vulnerabilities 

House  prices  have  risen  on  the  back  of  strong  demand  and  restricted  supply.  Nominal 
house  price  growth  reached  13.4%  year-on-year  in  Q3  2024  driven  by  lower  mortgage  interest 
rates,  higher  wages  and  government  subsidy  schemes.  The  strong  housing  demand  was  not  met 
with  a  corresponding  increase  in  supply.  In  2024,  new  dwelling  construction  declined  by  29% 
compared  to  2023.  The  number  of  building  permits  issued  fell  by  5%  in  the  same  period, 
suggesting that supply may remain subdued in the short run. Lending conditions and government 
policies to support demand remain supportive. Supply is set to adjust to booming demand with a 
lag, notably aided by the extension of the reduced VAT for new dwellings.(18) 

Assessment of MIP relevant policies 

Generous housing policies are exerting pressure on both prices and public finances while 
efforts to  ease  supply constraints  remain  limited.  In  2024,  the  government  redesigned the 
Home Purchase Subsidy that offered subsidies to families with children by a subsidised mortgage 
scheme  (HPS  Plus)  tailored  only  to  married  couples  planning  to  have  children.(19)  However,  the 
schemes  for  home  purchases  appear  to  remain  generous,  potentially  fuelling  house  price 
overvaluation.(20) The supply of housing is constrained, with new dwelling constructions amounting 
to only 13,300 units in 2024. This equates to a renewal rate of just 0.3% against a housing stock 
of 4.6 million units, significantly lower than the 1% renewal rate observed among regional peers.(21) 
The  continuous  extension of  the  preferential  VAT,  that  was  first introduced  in 2016  seems  to  be 
insufficient to tackle the persistent undersupply of new dwellings. 

(17)  See European Commission (2024): In-Depth Review 2024 Hungary. 
(18)  See MNB (2024): Housing Market Report, November 2024. 
(19)  The Home Purchase Subsidy remained available only in communities with less than 5000 inhabitants. 
(20)  See: European Commission (2024): In-Depth Review 2024 Hungary. 
(21)  See MNB (2024): Housing Market Report, May 2024. 

6 

 
 
2. Assessment of macroeconomic imbalances 

2.5.  FINANCIAL SECTOR 

Assessment of gravity, evolution and prospects of vulnerabilities 

The  banking  sector  is  characterised  by  robust  capital  and  liquidity  buffers.  In  Q3  2024, 
the Common Equity Tier 1 (CET1) ratio reached 18.8%, representing a notable increase from 16.8% 
in the corresponding period of the previous year. The sector's profitability has remained robust, with 
a return on equity of 21.3% in Q3 2024, and the quality of bank portfolios has been sustained at a 
satisfactory level. The non-performing loan (NPL) ratio has continued to decrease, from 2.4% in Q3 
2023 to 2.3% in Q3 2024. However, the share of government bond holdings in banks' total assets 
increased from 14% in December 2023 to 16% by the end of 2024, driven by a tax incentive that 
allows banks to reduce their windfall tax liability by increasing their government bond holdings in 
2024 and 2025. Furthermore, government contingent liabilities to the financial sector were one of 
the  highest  in  the  EU  in  2023.  These  developments  increase  risks  associated  with  the  bank-
sovereign nexus (see Annex 3). 

Household lending picked up in 2024, and corporate debt declined due to subdued credit 
demand.  The  introduction  of  voluntary  interest  rate  ceilings  by  banks  on  mortgages  and  firms’ 
working  capital  loans  —  in  return  for  abolishing  the  interest  rate  freezing  for  SMEs(22)—  and  the 
implementation  of  the  HPS  Plus  scheme  (see:  Part  2.4:  Housing  Markets)  contributed  to  a 
significant increase  in  household lending  in  2024.  Despite this  expansion,  the  household  debt-to-
GDP ratio remained relatively low at 17% in Q3 2024, the second-lowest level among EU countries. 
In  contrast,  corporate  debt  decreased  to  55%  of  GDP  in  Q3  2024,  down  from  57%  in  Q3  2023, 
largely  driven  by  sluggish  investment  activity  and  the  gradual  phase-out  of  certain  subsidised 
lending programs. Looking ahead, lending surveys in Q4 2024 suggest a potential pickup in lending 
to firms in 2025.(23) 

Assessment of MIP relevant policies 

The  interest  rate  ceilings  on  new  mortgage  loans  fuel  housing  demand  and  create 
distortions in the credit market. The interest rate ceiling on new mortgages has contributed to 
a surge in household lending in 2024. Moreover, the Hungarian Banking Association launched a new 
mortgage  scheme  in  late 2024,  which  features  an interest  rate  ceiling  of  5%  (well below  the  5-
year  interbank  reference  rate  in  February  2025)  to  be  applied  between  April  and  October  2025, 
targeting debtors under the age of 35 who meet specific eligibility criteria. The freezing of floating 
mortgage rates to 2021 levels continues to be in place, compromising the transmission mechanism 
of  monetary  policy.(24)  The  MNB  indicates  that  maintaining  such  pricing  policies  in  the  long  term 
may  drive  riskier  debtors  out  of  the  mortgage  market  and  that  banks  may  increase  the  price  of 
other financial services to offset lower profit on household lending.(25) 

Subsidised lending remains significant, negatively affecting capital allocation and public 
finances  and  limiting  the  effectiveness  of  monetary  policy.  The  share  of  subsidised 
corporate  loans  in  total  disbursements  declined  from  34%  in  2023  to  below  19%  in  2024,  as 
certain untargeted lending schemes that allowed for the refinancing of existing loans were phased 

(22)  See the government communication on the call here, and the Hungarian Banking Association’s reply here. 
(23)  See: MNB (2025): Trend in lending, February 2025. 
(24)  See: European Commission (2024): In-Depth Review 2024 Hungary. 
(25)  See: MNB (2024): Financial Stability Report, November 2024. 

7 

 
 
2. Assessment of macroeconomic imbalances 

out. Nevertheless, the share of subsidised loans remains elevated compared to the pre-COVID level 
of  7%.  These  schemes  can  lead  to  suboptimal  capital  allocation  by  financing  projects  with  low 
returns and limited productivity gains, this also limiting the transmission mechanism of monetary 
policy. 

Tax incentives to domestic banks in return for purchasing government debt strengthened 
the  bank-sovereign  nexus  in  2024.  Domestic  banks’  government  bond  holdings  increased  in 
2024  driven  by  a  tax  incentive  that  allows  banks  to  reduce  their  windfall  tax.  Such  incentives 
enhance banks’ demand for government bonds in the short run, but this effect may be followed by 
a  decline  in  demand  once  banks’  bond  portfolios  reached  the  desired  level,  leading  to  increased 
bond  market  volatility.  Furthermore,  incentives  to  channel  bank  lending  to  the  bond  market  may 
crowd out loans and lead to suboptimal capital allocation (see Annex 3). 

Table A: Policy considerations in context of this year’s In-depth Review for Hungary 

Vulnerability 

Policies 

Implementation status 

Government 
sector 

Price 
competitiveness 

Doubling the child tax allowance 
The increase in family tax and contribution 
allowance by 50 per cent from 1 July 2025, and 
doubling from the beginning of 2026.  
PIT exemption for mothers 
PIT exemption for mothers with two children, 
phased in over 2026-2029: (i) for mothers under 
the age of 40 from 2026, (ii) for mothers under 
the age of 50 from 2027, (iii) from 2028 to those 
under the age of 60, (iv) and from 2029 to those 
over the age of 60.  
Modification of the financial transaction levy and 
introduction of a levy on FX transactions 
The increase in the rates and the upper limit of the 
financial transaction levy from 1 August and the 
introduction of the additional financial transaction 
levy on foreign exchange conversion operations 
from 1 October. 
Pension reform 

Minimum wage increase 
Minimum wage increased by 9% in 2025, with 
further planned increases of 13% and 14% in 
2026 and 2027, respectively, following an 
agreement with labour unions and employer 
organisations. 
Retail profit margin cap on food 
The difference between the retail purchase price 
and the sales price of certain basic food products 
may not exceed 10 percent. 

Implementation in 2025 and 2026 

Announced in 2025 for implementation 
over 2026-2029 

Enacted in 2024 

The  OECD  report  on  reform  options 
published in July 2024, but no legislative 
initiative taken 

Agreed  in  2024.  Implemented  in  2025, 
2026 and 2027 

Applicable  as  of  17  March  2025  until 
end of May 2025 

External sector 

Electricity price reduction for producers 
The regulated electricity prices offered for small 
producers and set by the government under the 
KÁT-METÁR scheme 
House renovation subsidy  
A 50% subsidy is provided for dwelling renovation 
related to energy efficiency improvements, with a 
dedicated program for houses in settlements with 
less than 5000 inhabitants. 

Implemented  in  2025,  applicable  until 
2029 

Implemented in 2024 and 2025 
The housing subsidy is available as of 1 
July  2024  until  31  December  2025 
while  the  rural  housing  subsidy 
is 
available as of 1 January 2025 until 30 

8 

 
 
 
 
 
2. Assessment of macroeconomic imbalances 

Financial sector 

Housing markets 

Subsidised lending schemes 
Subsidised lending schemes for (i) SMEs 
investment, and (ii) young workers aged 17-26.  
expenditure. 
Prenatal baby loan - restriction 
Lower age limit for women eligible for the prenatal 
baby loan from 41 to 30 years 
Windfall tax relief for banks and insurance 
companies  
Banks can reduce their windfall tax liability by 
10% of the increase in their government bond 
holdings up to 50%, while insurance companies 
can reduce theirs by up to 30% of their 
government bond purchases. 

Loan-to-value limit increase 
The loan-to-value limit for first-time homebuyers 
has been increased to 90% as of 2024, and will 
also apply to green mortgages starting from 2025 
Countercyclical capital buffer (CCyB)  
MNB activated CCyB at 0.5 % as of July 2024 and 
at 1.0 % as of July 2025.  
Subsidised mortgages scheme (Home Subsidy 
Plus) 
Subsidised mortgages to couples who commit to 
having children, featuring a reduced interest rate 
and partial debt forgiveness for the birth of a 
second and third child.  

Tax exemption to use supplementary pensions 
savings for housing 
Households are allowed to use their tax exempted 
supplementary pension savings for housing 
purposes in 2025. 
Reduced VAT on new dwelling 
The 5% VAT rate applicable to new dwelling 
purchases was extended until 2026. 
Housing Investment Program 
Capital injection (0.2% of GDP) through the state 
owned development bank to investment funds to 
facilitate the construction of rental housing and 
new dwellings. 

June 2026. 

Implemented in 2025 

Announced in 2024  

Implemented 
2024 and 2025 

in  2024,  applicable 

in 

Implemented in 2024 and 2025 

Implementation in 2024 and 2025 until, 
applicable until 1 January 2026 

Implemented in 2024, ongoing 

Implemented 
2025 

in  2024,  applicable 

in 

Implemented in 2024, applicable until 
end 2026 

Announced in 2024 for implementation 
in 2025 

Note: This table lists the main measures that may increase or reduce the risks of macroeconomic imbalances. The 
measures are described more at length and reviewed in the text of this IDR.  

9 

 
 
 
 
 
 
2. Assessment of macroeconomic imbalances 

CONCLUSIONS 

Hungary  continues  to  face  vulnerabilities,  primarily  related  to  competitiveness  and 
government financing needs. Public debt increased in 2024, and debt-servicing costs and gross 
financing  needs  remain  at  high  levels.  Meanwhile,  rapid  wage  growth  in  recent  years  has 
compromised cost competitiveness. Planned minimum wage hikes in 2026 and 2027 are expected 
to  exert  pressure  on  wages,  prices  and  competitiveness.  Overall,  inflationary  pressures  remain 
persistent while the economic recovery is slow and subject to downside risks. Vulnerabilities related 
to  the  external  balance  reduced  in  2024,  but  policies  aimed  at  boosting  domestic  demand  and 
remaining  substantial  energy  imports  pose  risks  to  external  sustainability.  House  price  growth 
accelerated  in  2024  driven  by  strong  demand  and  accommodative  financial  conditions.  The 
financial sector is marked by capital and liquidity buffers and a solid credit portfolio. However, the 
bank-sovereign link has deepened due to tax incentives for domestic banks in return for purchasing 
government debt. 

Policy  progress  has  been  limited,  and  risks  of  external  and  domestic  shocks  remain. 
Monetary  policy  has  been  tight,  but its transmission  to  the  real  economy  has  been  weakened  by 
government  interventions.  At  the  same  time,  fiscal  policy  targets  are  not  yet  backed  by  policy 
measures  over  the medium-term.  The  government deficit decreased  due  to  lower  expenditure  on 
public  investment  and  a  decrease  in  spending  on  energy  subsidies,  but  this  was  partly  offset  by 
weaker revenue performance. The practice of poorly-targeted subsidies and loans to household and 
corporations  persists  and  administrative  controls  of  lending  rates  limit  the  effectiveness  of 
monetary  policy.  Housing  subsidies  and  preferential  lending  schemes  continue  to  distort  the 
housing market and exacerbate price pressures. In its medium-term fiscal-structural plan, Hungary 
committed  to  a  net  expenditure  growth  path,  but  specific  policy  measures  remain  to  follow.  The 
national  fiscal  framework  continues  to  lack  a  medium-term  orientation.  To  ensure  that  fiscal 
targets are achieved, Hungary will need to introduce permanent fiscal measures, and rely less on 
temporary windfall and profit taxes or cuts in public investments. 

10 

 
 
P
D
G
f
o
%

15

10

5

0

-5

-10

-15

P
D
G
f
o
%

10

5

0

-5

-10

-15

20

15

10

5

0

-5

-10

-15

)

%

(

y
-
o
-
y

e
g
n
a
h
c

f
o

e
t
a
R

Graph 2.1: Selected graphs, Hungary 

a) Decomposition of external position (current and 
capital accounts)

7
1

8
1

9
1

0
2

1
2

2
2

3
2

4
2

*
4
2

*
5
2

*
6
2

Services bal.
Goods excl energy
Primary inc. bal.
Current account

Goods, fcast
Energy balance
Second. inc. bal.
Net lending/borrowing

c) Net lending/borrowing by sector

2. Assessment of macroeconomic imbalances 

b) Current account

15

16

17

18

19

20

21

22

23 24* 25* 26*

Current account as % of GDP

Cyclically adjusted CA as % of GDP

d) Decomposition of net international investment 
position

P
D
G
f
o
%

8

6

4

2

0

-2

-4

-6

-8

-10

40

20

0

-20

-40

-60

-80

P
D
G
f
o
%

-100

15 16 17 18 19 20 21 22 23 24* 25* 26*

Corporations

General government

Households and NPISH

Total economy

15

16

17

18

19

20

21

22

23

24*

Reserve assets
Net portfolio investment, equity and investment fund shares/units
Net portfolio investment, debt securities
Other investment (net)
Net direct investment
Net financial derivatives and employee stock options
Net Int'l investment position (NIIP)
NENDI (NIIP excluding non-defaultable instruments)

e) Decomposition of REER

f) Decomposition of rate of change of ULC 

20

15

10

5

0

-5

-10

)
.
s
p
p
(

e
g
n
a
h
c

Y
-
o
-
Y

C
L
U
o
t

s
n
o
i
t
u
b
i
r
t
n
o
C

15 16 17 18 19 20 21 22 23 24 25* 26*

Inflation (HICP)
Real Compensation/hr.
Productivity/hr. (neg. contrib.)
ULC
ULC in EU27

15

16

17

18

19

20

21

22

23 24* 25* 26*

Relative HICP (-)

REER (HICP) IC-42

NEER IC-42

REER (ULC) IC-37

Source: Eurostat, Comext and European Commission forecasts and calculations. 

11 

       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. Assessment of macroeconomic imbalances 

Box 2.1: Medium-term external and government debt projections

This Box summarises external and internal debt-to-GDP projections for Hungary over the next decade, based on 
scenario  analysis  conducted  by  the  Commission.  It  covers  scenarios  to  take  into  account  different  underlying 
assumptions for external debt stocks, as well as the outcomes of the latest government debt sustainability analysis 
conducted by the Commission. 

Hungary’s  net  international  investment  position  (NIIP)  is projected  to  improve  in  the  medium  term 
under a broad range of scenarios. In the baseline projections the NIIP strengthens, coming closer to around -
6%  of  GDP  at  the  end  of  the  forecast  period,  exceeding  the  prudential  benchmarks  of  around  -55%  of  GDP. 
According to the baseline scenario, with a trade balance surplus as key contributor, the NIIP will increase. In an 
adverse scenario of a lower trade balance and if the annual inflation is assumed to be slightly below the baseline 
(assuming an annual average inflation rate of 3.2%), the NIIP ratio would continue to improve, reaching around -
13% of GDP. Risks to the country’s external position are partly mitigated by the favourable NIIP structure, as non-
defaultable  instruments  account  for  the  bulk  of  net  liabilities  and  are  composed  mostly  of  foreign  direct 
investments. The NENDI (NIIP net of non-defaultable instruments) was around -7% of GDP in 2023.  

Medium-term risks to fiscal sustainability for Hungary are overall high, whereas they are overall low 
in the short term and overall medium in the long term. The debt sustainability analysis carried out by the 
Commission indicates that, under the baseline scenario, the government debt-to-GDP ratio is projected to be at 
around 76% in 2029 and to increase to around 83% in 2034 (Graph 1.b) (1). This Commission’s assessment of 
fiscal sustainability risks does not take into account Member States’ commitments as outlined in the medium-
term fiscal-structural plans. In line with standard practice, it only incorporates fiscal measures that have been 
legislated or agreed for 2025 and assumes unchanged policy afterwards. 

Graph 1:  External and government debt projections, based on scenario analysis for Hungary 

P
D
G
f
o
%

10

0

-10

-20

-30

-40

-50

-60

a) NIIP projections (1)

b) Gross government debt (2)

P
D
G
f
o
%

95

90

85

80

75

70

22 23 24 25* 26* 27* 28* 29* 30* 31* 32* 33* 34*

Baseline
Higher trade balance/ high GDP
Lower trade balance/ 2010s avg inflation

22 23 24 25* 26* 27* 28* 29* 30* 31* 32* 33* 34* 35*
Historical SPB scenario
Adverse 'r-g' scenario

Baseline
Lower SPB scenario
Financial stress scenario

(1) The baseline NIIP projections are based on the Commission’s medium-term forecasts for GDP and interest rates. Additionally, 
assumptions are made about the drawdown of NGEU and MFF funds, and the median value of the last 3 years is used for non-
investment income. The ‘higher trade balance/ high GDP’ scenario assumes higher trade balance in 2025 and beyond, with the 
difference to the baseline calculated as half the interquartile range of the annual 10-year-average trade balance to GDP ratios 
over 2013-2023 and additionally reflects a permanent 1 pp increase in GDP growth relative to the baseline scenario. The 'lower 
trade balance/ 2010s avg inflation’ scenario assumes the same as the first scenario but with an opposite sign in the trade 
balance and also reflects an inflation rate that is set to the country-specific average inflation rate observed over the 2010s. 
(2) The baseline projection for government debt is stress-tested against four alternative deterministic scenarios to assess the 
impact of changes in key assumptions: ‘historical structural primary balance (SPB)’ scenario, in which the SPB returns to its 
historical 15-year average of -0.2% of GDP; ‘lower SPB’ scenario: the SPB in 2025 deteriorates by 50% more than in the 
forecast; ‘adverse interest-growth rate differential’ scenario: the interest-growth rate differential is 1 pp. higher compared with 
the baseline; ‘financial stress’ scenario: interest rates temporarily increase by 1 pp. compared with the baseline. 
Source: Eurostat, DSM 2024, and European Commission forecasts and calculations. 

(1)  European Commission (2025), Debt Sustainability Monitor 2024, European Economy Institutional Paper 306. 

12 

 
 
     
 
 
 
      
 
 
 
 
 
 
2. Assessment of macroeconomic imbalances 

Box 2.2: Tax revenue in Hungary

Erosion of Hungary’s tax revenue 

Hungary’s tax-to-GDP ratio has been declining in recent years, falling from 39.0% of GDP in 2016 to 
35.1% in 2023. This decline is largely due to labour tax cuts and a reduction in the corporate tax rate, which 
were implemented since 2017 to stimulate employment growth and investments. Changes in the composition of 
GDP  have  exacerbated  the  decline,  as  the  share  of  the  consumption  tax  base and  the  labour  tax  base  in  GDP 
decreased significantly (see 2024 In-depth review for Hungary).  

Main characteristics of Hungary’s tax mix 

Hungary’s tax system is characterised by the strong reliance on consumption taxes (13.5% of GDP in 2023, in 
comparison to EU average of 10.5%), as a result of the increase of the VAT rate to 27% in 2012 and introduction 
of  a  series  of  sectoral  consumption-related  taxes.  Labour  taxes  account  for  a  relatively  low  share  of  GDP  in 
comparison to the EU average (14.8% in 2023, as compared to 20.0%) and their share decreased over time due 
to multiannual cuts in social contributions enacted since 2017. Revenue from capital taxation,  at 6.8% in 2023, 
remains below the EU average of 8.5% of GDP, largely as a result of low CIT rate. Revenue from environmental 
taxation is close to the EU aggregate (2.2% of GDP in 2023 as compared with 2% in the EU). The property taxes, 
in particular recurrent property taxes, remain relatively low compared with the EU aggregate, at 0.8%. 

Table 1:  Types of tax in Hungary and EU as % of the GDP (2016, 2021-2023) 

Total taxes (including compulsory actual social contributions) (% of GDP)

Labour taxes (as % of GDP)

   of which, Social Security Contributions (SSC, % of GDP)

By tax base

Consumption taxes (as % of GDP)

   of which, Vale Added taxes (VAT, % of GDP)

Capital taxes (as % of GDP)

Personal income taxes (PIT, % of GDP)

Corporate income taxes (CIT, % of GDP)

Some tax types

Total property taxes (as % of GDP)

   of which, Recurrent taxes on immovable property (as % of GDP)

Environmental taxes (as % of GDP)

Hungary

EU-27

2016

2021

2022

2023

2016

2021

2022

2023

39.0

18.1

13.7

13.8

9.1

7.1

4.7

2.1

1.1

0.5

2.5

33.6

14.4

10.4

13.8

9.8

5.4

4.1

1.2

0.9

0.4

2.0

35.0

14.6

9.8

14.1

10.1

6.3

5.3

1.3

1.0

0.3

1.9

35.1

14.8

9.9

13.5

9.4

6.8

5.4

1.7

0.8

0.3

2.2

39.8

20.4

13.1

11.3

7.0

8.1

9.3

2.5

2.3

1.3

2.7

40.2

20.5

13.0

11.2

7.3

8.5

9.6

2.9

2.2

1.1

2.4

39.7

20.1

12.7

10.9

7.4

8.7

9.4

3.2

2.1

1.0

2.1

39.0

20.0

12.7

10.5

7.1

8.5

9.3

3.2

1.9

0.9

2.0

Source: European Commission, DG Taxation and Customs Union, based on Eurostat data 

Specific weaknesses in the Hungarian tax system 

Hungary’s tax system suffers from several weaknesses: 

•  Revenue from CIT remains low. The CIT rate, at 9%, is the lowest in the EU (EU average is at around 21%). 
In addition to CIT, Hungarian resident companies are subject to Local business Tax, which is deductible for CIT 
purposes. The forward-looking average effective tax rate (ETR) was 11.1% in 2022 (third lowest among EU 
member states; EU average around 19%). The low statutory tax rates, combined with a limited tax base due 
to various tax incentives and exemptions reduces the tax revenue generated from CIT. Additionally, the low 
statutory  rates  and  the  lack  of  withholding  tax  on  dividends,  interest,  and  royalties  increases  the  risk  of 
aggressive tax planning.  

•  Tax  expenditures  are  estimated  at  some  2.1%  of  GDP  in  2022.  The  Hungarian  tax  system  is 
characterised by numerous tax  deductions and exemptions that bring limited economic and social benefits 
relative  to  their  budgetary  cost.  These  include  among  others:  (i)  the  personal  income  tax  exemptions  for 
workers  under  age  25  (0.2%  of  GDP),  (ii)  the  deductibility  of  donations  to  sport  clubs  from  corporate  tax 
obligations, up to 80% of the total tax obligation (amounting to 0.2% of GDP in 2022), (ii) the exemption of 

(Continued on the next page) 

13 

 
 
   
 
 
  
 
   
 
 
2. Assessment of macroeconomic imbalances 

Box (continued) 

employed  pensioners  from  social  contributions  (0.36%  of  GDP  in  2022),  and  (iii)  the  personal  income  tax 
exemptions for women with at least 4 children (0.05% of GDP in 2022) and mothers under age 30. 

•  Environmental taxation could better internalise negative environmental costs. In 2022, revenue from 
environment-related taxes was slightly below the EU average, at 1.9% of GDP. Still, Hungary’s tax revenues 
raised on energy and transport are below the EU average. While the environmental taxes on resources and 
pollution are above the EU average. There is room to increase environmental taxes to further internalise the 
cost  of  air  pollution and  to  limit  water  pollution,  for  example  on  solid  fuels  like  biomass  in  the residential 
sector, or on waste such as beverage containers.  

•  The  redistributive  function  of  the  labour  tax  system  remains  low.  This  is  due  to  flat  rate  personal 
income tax system, with the taxation rate at 15%, and high reliance on flat-rate social contributions. Due to 
the lack of progressivity, low-income earners are taxed relatively high - the tax wedge remains at the same 
level (41.2%) for different level income earners. The highest in the EU VAT rate puts an additional burden on 
the low-income earners. More progressive labour tax system could increase the redistributive capacity of the 
tax system, while strengthening work incentives for low earners. 

•  The  tax  system  does  not  address  the  high  wealth  concentration  in  Hungary.  The  concentration  of 
personal wealth in Hungary is the second highest in the EU (with the top 1% share of taxpayers holding some 
33.5% of total net personal wealth in 2022, as compared to the EU average of c. 25% in the same year) and 
has  increased  significantly  since  2013  (from  25%)(1).  Currently,  there  is  no  net-wealth,  nor  exit  tax  for 
individuals in Hungary. The inheritance and gifts are taxed at an 18% rate, if the beneficiary is not a close 
relative,  while  residential  property  and  rights  with  monetary  value  are  subject  to  only  a  9%  rate.  Large 
exemptions  substantially  decrease  the  effective  tax  rates,  including  on  (i)  inheritance  of  land  suitable  for 
constructing a residential property or inheritance of rights with monetary value on such land if the beneficiary 
builds a residential property on it within 4 years, (ii) inheritance of debt securities issued by a member state 
of the EEA; (iii) and estate inherited by descendants, ascendants or spouse of the deceased.  

In the current context of heightened consolidation needs, the decline in tax revenue is constraining 
fiscal policy choices in Hungary. The gradual decrease in the deficit in 2024 and in 2025 is expected to be 
mainly driven by decreases in interest payments and energy subsidies, cuts to public investments and temporary 
revenue from the windfall profit and sectoral taxes. To ensure that fiscal targets are achieved, Hungary will need 
to  introduce  permanent  fiscal  measures  that  do  not  undermine  the  growth  potential  of  the  economy.  Unless 
Hungary shores up tax revenue in a sustainable way, further fiscal adjustment is likely to disproportionately affect 
the expenditure side of the budget leading to cuts to growth-friendly expenditure, such as public investments and 
spending on essential public services. 

(1)  World Inequality Lab 

14 

 
  
 
 
 
 
2. Assessment of macroeconomic imbalances 

Table 2.1:  Key economic and financial indicators, Hungary 

Output and Prices

Real GDP (1 year % change)

Real GDP per capita (1 year % change)

GDP deflator (1 year % change)

Harmonised index of consumer prices (1 year % change)

Core inflation (HICP excluding energy, food, alcohol and tobacco) (1 year % change)

External position

Current account balance, balance of payments (% GDP, 3y average)

Current account balance, balance of payments (% of GDP)

of which: trade balance (% GDP)

of which: income balance (% GDP)

Current account norm (% of GDP) (1)

Current account req. to reach fund. NIIP (% of GDP) (2)

average

average

           forecast

2017-2019 2020-2022

2023

2024 +

2025

2026

4.9

5.2

4.5

2.9

2.0

1.8

0.5

4.3

-3.8

-0.5

-3.5

2.2

2.5

8.9

7.8

5.6

-2.2

-4.5

-0.9

-3.5

-0.3

-2.9

-0.9

-0.8

14.6

17.0

14.0

-3.9

0.8

5.0

-4.2

-0.3

-2.0

0.5

0.8

7.5

3.7

5.9

-1.9

2.0

-0.1

-1.8

1.8

2.1

4.1

3.6

4.0

1.3

1.1

3.1

3.4

3.3

3.2

3.4

1.3

0.9

-0.1

0.2

Net international investment position (% of GDP)

-46.5

-48.3

-36.8

-34.3

-31.8

-29.5

NENDI - NIIP excluding non-defaultable instruments (% of GDP)

Net lending-borrowing (% of GDP)

Competitiveness

Nominal unit labour cost index per hour worked (3y % change)

Nominal unit labour cost index per hour worked (1 year % change)

Real effective exchange rate - 42 trad. part., HICP defl. (3y % ch.)

Real effective exchange rate - 42 trading partners, HICP deflator (1 year % change)

Export performance against advanced economies (3y % change)

Export performance against advanced economies (1 year % change)

Core inflation differential vis-à-vis the euro area (pps.)

Corporations

Non-financial corporate (NFCs) debt, consolidated (% of GDP) (3)

NFCs debt fundamental benchmark (% of GDP) (4)

NFC (excl. FDI) credit flow, cons. (% debt stock t-1, excl. FDI) 

Households and housing market

Household debt, consolidated (% of GDP) (3)

Household debt fundamental benchmark (% of GDP) (4)

Household debt, consolidated (% of Households' GDI)

Household credit flow, consolidated (% debt stock t-1)

Household gross saving rate (&)

House price index, nominal (1 year % change)

House prices over/undervaluation gap (5)

Standardized price-to-income ratio

Building permits (m2 per 1000 inh)

Government

General government gross debt (% of GDP)

General government balance (% of GDP)

Banking sector

Return on equity of banks (%)

Tier-1 capital ratio banking sector (% risk-weighted assets)

Gross non-performing loans, domestic and foreign entities (% gross loans)

Cost of borrowing for households for house purchase (%)

Cost of borrowing for NFCs (%)

Labour market

Unemployment rate (% labour force Y15-74)

Labour force participation rate - % pop. aged 15-64 (3y change in pp)

-4.6

2.1

10.6

3.9

0.9

0.1

2.8

0.9

0.9

50.3

36.2

9.0

18.3

22.2

27.2

7.5

14.8

14.5

-0.9

100.4

406.5

68.6

-2.2

14.5

15.6

6.0

4.5

1.7

3.6

3.6

-2.3

-2.4

17.6

7.7

-5.7

-2.7

-0.1

-1.0

3.6

60.2

42.8

17.0

20.1

29.0

29.2

12.0

17.4

14.3

11.6

108.6

353.7

76.2

-6.9

10.8

17.1

3.3

5.1

4.8

3.9

2.2

-6.7

1.7

35.4

15.3

10.3

15.3

1.2

7.5

9.1

55.5

46.1

6.8

16.9

32.5

24.1

3.4

19.0

7.1

13.0

102.6

259.6

73.4

-6.7

21.2

17.8

2.4

9.8

12.7

4.1

3.0

36.5

6.0

9.0

-0.5

-2.3

-0.5

1.5

23.5

4.3

-1.7

1.4

-3.9

2.7

1.3

47.3

11.7

7.3

-2.3

-3.1

-5.9

3.1

54.4

46.1

8.4

17.0

33.0

23.3

9.0

12.8

15.4

74.5

-5.3

74.5

-4.6

73.8

-4.1

2.3

7.1

9.0

4.5

2.3

4.3

1.6

4.1

1.1

+ If actual data were unavailable at the cut-off date, forecast or nowcast data are presented instead;   * Denotes values above prudential thresholds;
(1) Current accounts in line with fundamentals (current account norms): derived from reduced form regressions capturing the main determinant of the saving-investment balance, including fundamental 
determinants, policy factors and global financial conditions. See Coutinho, Turrini and Zeugner (2018), “Methodologies for the Assessment of Current Account Benchmarks”, European Economy, Discussion 
Paper 86, DG ECFIN, European Commission. 
(2) Current account required to reach the prudential level of the NIIP over 10 years: calculations make use of Commission’s T+10 projections. See Coutinho, Turrini and Zeugner (2018), “Methodologies for 
the Assessment of Current Account Benchmarks”, European Economy, Discussion Paper 86, DG ECFIN, European Commission.
(3) Prudential threshold for non-financial corporate and household debt-to-GDP ratio: corresponds to the level above which banking crises become more likely. It is derived from regressions minimising the 
probability of missed crises and that of false alerts. See Bricongne et al. (2020), “Is Private Debt Excessive?”, Open Economies Review, 31:471-512.
(4) Fundamentals-based benchmarks for non-financial corporate and household debt-to-GDP ratios: assesses private debt from regressions capturing the main determinants of credit growth and taking 
into account a given initial stock of debt. See Bricongne et al. (2020), “Is Private Debt Excessive?”, Open Economies Review, 31:471-512.
(5) House prices over/undervaluation gap: is the simple average of the price-to-income, price-to-rent and model valuation gaps. The model valuation gap is estimated in a cointegration framework using a 
system of five fundamental variables: total population, real housing stock, real disposable income per capita, real long-term interest rate and price deflator of final consumption expenditure. Based on 
Philiponnet, N., Turrini, A. (2017), “Assessing House Price Developments in the EU”, European Economy - Discussion Papers 2015 - 048, DG ECFIN, European Commission.
Source: Eurostat and ECB; European Commission for forecast figures (Autumn Forecast 2024). 

15 

 
      
 
ANNEX 1 - SLOWDOWN OF INVESTMENT AND EXPORT PERFORMANCE 

Investment began to slowdown in recent years, following a period of  robust expansion. 
Over the past two decades, Hungary's investment (gross fixed capital formation, GFCF) has grown 
by an average annual rate of 1.1% in real terms (same as the EU), with GFCF contributing 0.28 pps. 
to  GDP  growth  between  2005  and  2014.  This  trend  was  marked  by  a  period  of  rapid  expansion 
between 2016 and 2019, during which GFCF jumped by 57%. However, this momentum was short-
lived,  as  GFCF  began  to  decline  in  2022  and  has  fallen  by  18%  over  the  past  two  years.  This 
contrasts to increases in other regional peers - Slovakia (+12%), Poland (+14%) and Czechia (+1%). 
Nevertheless,  GFCF  remains  a  crucial  component  of  Hungary's  economy,  accounting  for  23%  of 
GDP on average between 2005 and 2024, with a peak of 27% in 2019, one of the highest levels in 
the EU.   

The  automotive  sector  has  been  a  key  driver  of  investment  in  manufacturing,  but  the 
recent  shift  to  electric  vehicles  has  altered  the  investment  landscape.  A  sizable  part  of 
Hungary’s  investment  has  been  directed  towards  the  automotive  sector(26),  which  accounted,  on 
average, for 25% of total GFCF in manufacturing between 2005 and 2023 (Graph A1.1). However, 
after reaching a peak in 2012, investment in the sector started to decline moderately. In contrast, 
investment  in  the  electrical  equipment  sector(27),  which  includes  the  production  of  batteries,  has 
increased dramatically since 2017 (+693% in volume). The Hungarian government(28) has adopted 
a strategy to attract FDI for EV production to position the Hungarian economy as an important hub 
in the global value chain for electric vehicles (EVs).(29) Hungary is gradually becoming an important 
hub in the global value chain of EVs, especially batteries, attracting large FDI investments, not only 
from  incumbent  players  such  as  German  automobile  manufacturers  (e.g.  Audi)(30),  but  also  new 
companies from Asian countries from other sectors, such as South Korea (e.g. Samsung and LG)(31) 
and  China  (e.g.  CATL  and  BYD).(32)  In  fact,  the  automotive  and  electrical  equipment  sectors 
combined  currently account for almost 50% of GFCF in manufacturing (12% of total GFCF), mainly 
from foreign companies and FDI. According to the Central Bank of Hungary (MNB), the FDI as share 
of  GDP  has  been  increasing  in  the  automotive  and,  more  recently,  in  the  batteries  sectors, 
averaging 9% between 2017 and 2023.  

(26)  NACE code C29 - Manufacture of motor vehicles, trailers and semi-trailers. 
(27)  NACE code C27 - Manufacture of electrical equipment. 
(28)  “Orbán turns to China to boost recession-hit economy”. Financial Times (2024) https://www.ft.com/content/ca5f5ce6-46ad-
4a34-80b1-b0f7d4b17d58.  “Hungary’s  Orbán  courts  China  and  wins  a  surge  of  clean  car  investments”.  Politico  (2023) 
https://www.politico.eu/article/hungary-pm-viktor-oran-china-ties-ev-clean-car-investments-tensions-eu/.  

(29)  “German  car  giants  and  Asian  battery  kings  chose  Hungary 

for  multi-billion  deal”.  Euroactiv 

(2022). 

https://www.euractiv.com/section/batteries/news/german-car-giants-and-asian-battery-kings-chose-hungary-for-multi-
billion-deal/.  

(30)  “Audi  to  invest  $320.2  million  to  boost  electric  engine  output  in  Hungary”.  https://www.reuters.com/business/autos-

transportation/audi-invest-3202-mln-boost-electric-engine-output-hungary-2022-06-21/.  

(31)  “In December 2017, Samsung SDI decided to invest €1.2 billion to expand the production capacity of its existing battery 
cells production facility for EVs in the region of Göd.” https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1265 or 
“LG  Magna  e-Powertrain  Expands  Footprint  with  New  Facility  in  Hungary”.  https://www.magna.com/stories/news-press-
release/2023/lg-magna-e-powertrain-expands-footprint-with-new-facility-in-hungary.  

(32)  “CATL announces its second European battery plant in Hungary”, https://www.catl.com/en/news/983.html or “BYD to Build A 
New  Energy  Passenger  Vehicle  Factory  in  Hungary  for  Localised  Production  in  Europe”.  https://www.byd.com/eu/news-
list/BYD_to_Build_A_New_Energy_Passenger_Vehicle_Factory_in_Hungary_for_Localised_Production_in_Europe.  

16 

 
 
 
Graph A1.1: Gross fixed capital formation, in chain linked volumes and share in total 
manufacturing 

Annex 1 - Slowdown of investment and export performance 

g
n
i
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%

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Share in manufacturing (electrical)

Manufacture of electrical equipment

Share in manufacturing (automotive)

Manufacture of motor vehicles, trailers and semi-trailers

Source: Eurostat. 

The  robust  investment  has  driven  an  increase  in  competitiveness  and  exports, 
particularly  in  the  automotive  industry.  Between  2005  and  2024,  Hungary's  goods  exports 
grew  at  an  average  annual  rate  of  5%,  outpacing  the  EU  average  of  3%.  Exports  of  goods 
accounted for 58% of GDP in 2024, the fifth highest share in the EU (Graph A1.2a). The automotive 
sector (NACE code 29), in particular, plays a dominant role in Hungary's export economy, accounting 
for 22% of total exports in 2023, the third highest share in the EU. The electric sector (NACE code 
27) accounts for a further 9% of total exports, the highest in the EU, up from 4% in 2020 (Graph 
A1.2b).  These  sectors,  along  with  the  broader  manufacturing  sector,  drive  around  80%  of  the 
country's exports. However, exports from the automotive sector are characterised by low domestic 
value-added  content.  OECD  data  for  2020  shows  only  33%  of  domestic  value-added  content  on 
exports  from  this  sector,  unchanged  compared  to  2015.  This  figure  is  equally  low  in  Slovakia 
(31%),  but  significantly  higher  in  Czechia  (50%)  and  especially  in  Germany  (74%).  Moreover 
Hungary has a high level of trade integration with Germany, and, the largest shares of total value 
added in the Hungarian economy are generated to satisfy domestic demand in Germany.(33)   

(33)  See: European Commission (2024): In-Depth Review 2024 Hungary. 

17 

     
 
 
 
 
 
 
 
 
 
 
Annex 1 - Slowdown of investment and export performance 

b) Top 10 EU countries with the largest share of 
automotive exports and share of electric equipment 
exports, 2023

32

29

22

22

21

7

5

9

6

5

14

14

13

13

3

2

3

8

8

3

Graph A1.2: Selection of graphs about exports 

a) Exports of goods 

P
D
G
f
o
%

90

80

70

60

50

40

30

20

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Exports of goods, 2024

CAGR, 2005-2024

Manufacture of motor vehicles, trailers and semi-trailers

Manufacture of electrical equipment

Source: Eurostat. European Commission. 

Despite  challenges,  the  automotive  sector  in  Hungary  has  shown  resilience,  with  new 
growth opportunities on the horizon. The recent fluctuations in the sectors associated with the 
automotive industry highlight the economy's significant dependence on this industry and a lack of 
diversification, as well as the reliance on FDI, which exposes the economy to external factors and to 
changes  in  global  value  chains.  However,  the  automotive  industry  remains  resilient,  and  the 
national  authorities  see  the  shift  towards  EVs,  sustained  by  the  influx  of  mainly  non-EU  FDI,  as 
providing new growth opportunities, and the recent drop in GFCF as a temporary setback. A study 
carried out by the MNB(34) provides estimates on the positive impacts on exports and GDP from the 
recent investments mentioned above, and a recent paper from the IMF highlights the upsides of the 
strategy  adopted  by  Hungary  to  attract  FDI  for  EV  production  as  a  way  to  offset  losses  in  the 
internal combustion engine production chain.(35) 

In contrast with the automotive sector, the overall export market share has stagnated 
in  recent  years,  and  challenging  external  conditions  and  domestic  policy  uncertainty 
continue to put pressure on exports and investments. Hungary's global export market share 
has  remained  relatively  unchanged  in  recent  years,  standing  at  0.59%  in  2023,  suggesting  that 
other  sectors  may  be  struggling to  compete  globally.  After  reaching  a peak  of  0.67%  in  2008,  it 
declined between 2008 and 2012 and has failed to recover (Graph A1.3). This contrasts with other 
regional peers, which have recovered from the slump registered in the same period (+0.51 p.p. for 
Poland, +0.05 p.p. for Czechia, and 0.01 p.p. for Slovakia between 2008 and 2023). The divergence 
between  Hungary  and  other  CEE  Member  States  underscores  idiosyncratic  factors  that  are 
affecting  the  Hungarian  economy.  In  particular,  monetary  policy  was  much  tighter,  and  despite 
government  measures  to  boost  investment  (such  as  new  lending  schemes  or  R&D  spending 
incentives), business confidence has remained low. The uncertainty about the disbursement of the 
RRF funds has negatively affected investor confidence.  

(34)  See also Box 1-3 in MNB (2024): Inflation Report December 2024.  
(35)  Wingender, P., Yao, J., Zymek, R., Carton, B., Cerdeiro, D., & Weber, A. (2024). Europe's Shift to EVs Amid Intensifying Global 

Competition. 

18 

     
 
 
 
 
 
 
Annex 1 - Slowdown of investment and export performance 

0.59

Graph A1.3: Export market share of goods in the world, 2005-2023 

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

l

a
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05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20

21

22

23

Source: Eurostat. 

19 

   
 
 
 
 
 
ANNEX 2 - MINIMUM WAGE DEVELOPMENTS AND COMPETITIVENESS 

Minimum wage increases have been significant in the past decades but have been on par 
with regional peers. Minimum wages In Hungary are set by a tripartite agreement between the 
government, the largest trade unions, and employers’ associations in the private sector. Besides the 
statutory minimum wage that has universal application, the parties set the ‘guaranteed minimum 
wage’  applying  to  those  whose  jobs  require  at least  a  high  school  diploma  or  equivalent level  of 
vocational training. Hungary's statutory minimum wage in both nominal euro values and adjusted 
by  the  purchasing  power  standard  (PPS)  was  among  the  lowest  in  the  EU  in  2024,  but  it  was 
comparable to regional peers in terms of purchasing power (Graph A2.1.a). Over the past decade, 
minimum wages have seen an average annual increase of 12% since the introduction of the six-
year wage agreement in 2016 while the flat income tax regime, applicable to both minimum wage 
earners and higher-income employees, has remained in place.  

To  achieve  the  government  target  of  a  50%  minimum-wage-to-average-wage  ratio  by 
2027  minimum  wages  are  set  to  increase  much  more  than  average  wages.  The 
government  aims  to  phase  out  the  guaranteed  minimum  wage  and  increase  the  minimum-to-
average  wage  ratio,  from 41%  in  2024  to  50%  by 2027.(36)  In  November  2024,  the  government 
and social partners agreed on a three-year deal, which includes minimum wage increases of 9%, 
13%,  and  14%  for  2025,  2026,  and  2027,  respectively.  To  offset  the  costs,  employers  will  pay 
reduced social contributions for minimum wage workers for those years. This is an ambitious plan, 
given  that  the  minimum-to-average  wage  ratio  hovered  around  40%  as  a  result  of  the  strong 
average  wage  dynamics  in  the  past  10  years  (Graph  A2.1.b).  The  foreseen  minimum  wage 
increases  would  need  to  be  accompanied  by  a  decelerating  average  wage  increase  to  attain  the 
50% ratio by 2027.  

The three-year plan to increase the minimum wage is expected to boost wages of low-
wage  earners  and  household  consumption.  According  to  the  MNB’s  estimate,  administrative 
wage setting directly affected 17% of employees in 2023, down from 21% in 2022.(37) This shows 
that  a  significant  proportion  of  workers  are  affected  by  minimum  wage  increases.  A  substantial 
minimum wage increase could also have spillover  effects, putting pressure on the  wages  of  low-
wage earners up to the average wages level.(38) Employees earning minimum wages tend to have a 
higher marginal propensity to consume, implying that in response to a larger wage increase, they 
would spend more of their disposable income on consumption, with possible impact on aggregate 
demand, external balance and consumer prices.  

(36)  See the interview with the minister for national economy in August 2024 (in Hungarian, here). 
(37)  This includes wages of workers under the public work scheme. The statutory minimum wage directly affected 5% of total 

employees in 2023, according to MNB. 

(38)  See Box 1-5 in MNB(2024): Inflation Report. December 2024. 

20 

 
 
 
 
 
 
 
 
 
 
Annex 2 - Minimum wage developments and competitiveness 

Minimum wage policy needs to balance the need to protect the low paid against the risks 
to employment, firms’ costs, and inflation. Historical evidence from minimum wage increases 
in  the  early  2000’s  suggests  that  firms  responded  to  minimum  wage  increases  by  cutting  non 
labour costs and passing on rising wage costs to consumers, rather than laying off employees.(39) A 
gradual  increase  of  the  minimum  wage  from  its  relatively  low  level  would  help  keeping  skilled 
labour  force  in  the  domestic  labour  market.  However,  the  current  context  of  sluggish  external 
demand,  persistent  inflationary  pressures,  high  labour  hoarding,  and  tight  fiscal  and  monetary 
policies (as opposed to the accommodative economic policy stance between 2017 and 2022) may 
amplify  the  adverse  effects  of  very  large  minimum  wage  increases,  including  on  labour  costs 
beyond the low wages, inflationary pressures and employment losses. At the same time, the fact 
that  the  agreement  can  be  renegotiated if  actual  data  significantly deviates from  the  underlying 
macroeconomic assumptions mitigates this risk.  

Graph A2.1: Minimum wage 

a) Minimum wage in the EU as of 2025 in euro, 
nominal

3000

2500

2000

1500

1000

500

0

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b) Minimum wage to average wage
in Hungary

%

,

o
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a
R

46

44

42

40

38

36

34

32

30

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Source: Eurostat, KSH (Central Statistical Office). 

(39)  Harasztosi, P. and Lindner. A. (2019) “Who pays for the minimum wage?” American Economic Review, 109 (8), 2693–2727) 
on the effects of an unexpected 57% minimum wage increase in Hungary in 2001 and a further 25% increase in 2002 
showed that minimum wage hikes passed through mostly into consumer inflation. A more recent (Bodnár et al. (2018) How 
do  firms  adjust  to  rises  in  the  minimum  wage?  Survey  evidence  from  Central  and  Eastern  Europe.  IZA  Journal  of  Labor 
Policy) showed that firms in Central-Eastern Europe employing a larger share of employees on minimum wages respond to 
rises in the minimum wage mostly by cutting non-labour costs, while other firms adjust by raising productivity. 

21 

      
 
 
 
 
ANNEX 3 - BANK-SOVEREIGN NEXUS TRENDS, POLICIES, AND RISKS 

The relationship between banks and the sovereign has attracted a lot of attention in the 
policy debate since the global financial crisis. Over the years, some governments in advanced 
economies  encouraged  domestic  financial  institutions  to  hold  government  debt  as  a  debt 
management  tool.(40)  In  Hungary,  increasing  reliance  on  households  and  the  domestic  financial 
sector helped to decrease reliance on foreign exchange (FX) and external financing in the aftermath 
of the global financial crisis, which was also welcomed by credit rating agencies.(41) A sizable retail 
bond programme and the self-financing policies of the central bank helped to reduce the share of 
FX  debt  to  total  public  debt  from  48%  to  33%  between  2010  and  2024  (Graph  A3.1.a-b).(42) 
However,  excessive  exposure  of  the  domestic  banking  sector  to  the  government  poses  well-
documented risks.(43) This section aims to provide a deeper look into the bank-sovereign nexus and 
the policies that are affecting this in Hungary. 

A  new  scheme  offering  tax  incentives  to  domestic  banks  in  return  for  purchasing 
government  debt  strengthened  the  bank-sovereign  nexus  in  2024.  Domestic  banks’ 
government  bond  holdings  increased  to  15.6%  of  banks’  total  assets  at  the  end  of  2024  from 
13.9% a year before, which is among the highest shares in the EU (Graph A3.1.c-d). The increase 
was driven by a tax incentive that allows banks to reduce their windfall tax liability by 10% of the 
increase in their government bond holdings, up to a maximum of 50% in 2024 and 2025.(44) To put 
this  into  perspective,  the  government  expects  to  collect  a  windfall  tax  from  banks  equivalent  to 
0.4%  of  GDP  in  2025.  To  maximise  the  tax  exemption,  which  could  reach  up  to  0.2%  of  GDP, 
domestic  banks  would  need  to  increase  their  government  securities  portfolio  by  approximately 
2.0%  of  GDP.  The  tax  relief  is  based  on  their  average  bond  holdings  between  January  and 
November 2025, suggesting that banks may frontload their government bond demand to meet the 
requirement more easily. 

More  government  bonds  are  expected  to  be  absorbed  by  the  banking  sector  in  2025, 
based  on  the  financing  plans  of  the  government.  Net  domestic  wholesale  bond  issuance  is 
projected  to  rise  to  2.3%  of  GDP,  a  significant  increase  from  the  -1.5%  planned  for  2024.  In 
contrast, planned net FX issuance and retail bond issuance are expected to decline substantially.(45) 
This  shift  is  already  evident  as  wholesale  bond  issuance  in  January-February  2025  increased  by 
76%  compared  to  the  same period  in 2024.  Furthermore,  any  additional  financing  needs beyond 
the  planned  amount  would  likely  be  met  through  the  banking  sector,  given  that  the  FX  ratio  of 
central  government  debt  stood  close  to  the  government's  30%  threshold.  This  suggests  that  the 
government may be constrained in its ability to issue FX-denominated debt, making the domestic 
banking sector an increasingly important source of financing.  

The  bank-sovereign  link  has  further  deepened  as  the  state  has  significantly  increased 
guarantees  provided  to  the  financial  sector.  In  2023,  total  government  guarantees  reached 
13% of GDP, with 4% directed towards the financial sector, marking the fourth-highest rate in the 
EU.  These  guarantees  to  the  financial  sector  increased  in  2022  and  2023,  compared  to  a  more 

(40)  See: Reinhart, C. M., and B. Sbrancia. 2015. "The Liquidation of Government Debt.” Economic Policy 30 (82): 291– 333 
(41)  See eg: Moody’s (2016) link here. 
(42)  See: Bodnár et al (2016): Results of the Self-financing Programme, Magyar Nemzeti Bank, 2016 link here. 
(43)  For  an  overview  see  e.g.  C.  Borio,  M.  Farag,  F.  Zampinoli  (2023):  Tackling  the  fiscal  policy-financial  stability  Nexus  BIS 

Working Papers No. 1090 April 2023. 

(44)  The tax relief is calculated based on the difference in average bond stock between two periods. For 2024, the calculation 
uses the average stock from January to November 2024 compared to the average stock from January to April 2023. For 
2025, the calculation uses the average stock from January to November 2025 compared to the higher of two reference 
periods: either January to November 2024 or January to April 2023. 

(45)  See: AKK (2024): Debt Management Outlook 2025. 

22 

 
 
 
 
Annex 3 - Bank-sovereign nexus trends, policies, and risks 

stable level  of  around  2.6%  of  GDP  from  2017  to 2021.    The  government introduced  subsidised 
loan guarantee programs for firms in response to rising energy prices, along with loan guarantees 
for SMEs to support subsidised loans.(46) This arrangement implies that if a corporation defaults on 
its  loan,  the  government  assumes  the  debt  obligation.  Consequently,  a  significant  rise  in  non-
performing  loans  during  an  economic  downturn  could  increase  government  financing  needs  and 
further intensify the interdependence between the government and domestic banks. 

Full  implementation  of  Hungary’s  medium-term  fiscal-structural  plan  could  pave  the 
way for more diversified financing and reduce the bank-sovereign nexus risks. Currently, 
government  financing  relies  on  a  combination  of  retail  bonds  issued  to  households,  FX  issuance, 
and national currency wholesale bonds issued to the financial sector. However, pension funds and 
insurance  corporations  play  a  relatively  minor  role  in  government  financing.  Fiscal  consolidation 
efforts based on permanent measures from both the expenditure and revenue sides would reduce 
the  public  debt  and  thus  sovereign  risk.  This,  together  with  a  withdrawal  of  government 
interventions  in  the  financial  sector,  could  ultimately  lead  to  a  broader  range  of  investors 
participating in the market, further diversifying the government's financing sources. 

Graph A3.1: Selected graphs 

a) FX share of government debt 

b) Holder composition of government debt

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05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Foreign

Non-bank fin. corp.

Central bank

Private sector (NFCs & HH)

MFIs excl. central bank

Total debt

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

c) Banks' government bond holdings 

d) Banks' government bonds holdings

s
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Source: ECB, Eurostat, IMF, AKK (Government Debt Management Agency), MNB (Central Bank of Hungary). 

(46)  The  figures  reflect  state  guarantees  to  the  mainly  state  owned  Guarantiqa  Plc.  and  Start  Garancia  Plc.  that  provide 

guarantees to debtors up to 80% of debt obligations. 

23 

            
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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