Bad news: Hungary downgrated to negative by top credit rating agency
International credit rating agency Fitch Ratings has downgraded Hungary’s outlook from stable to negative, keeping the country just one notch above non-investment, or “junk”, grade.
The sovereign rating remains at BBB, but the shift in outlook signals mounting concerns over Budapest’s fiscal direction, political unpredictability and weakening economic performance ahead of the 2026 parliamentary elections.
Fitch’s latest review, released late on Friday, warns that without credible and immediate corrective action, Hungary risks slipping into speculative territory. Such a downgrade would increase the cost of financing state debt and could deter institutional investors who avoid countries rated as junk by two major agencies.
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Rising deficits and election spending trigger alarm
At the heart of Fitch’s concerns is the widening budget deficit, fuelled partly by a new wave of pre-election spending. The agency now expects Hungary’s deficit to reach 5% of GDP this year, in line with the government’s revised target, but to worsen to 5.6% in 2025—notably higher than the typical 3% deficit seen among other BBB-rated countries.
According to HVG‘s article, many of the government’s welfare measures—such as extended income-tax exemptions for mothers, an additional monthly pension payment despite insufficient pension-fund coverage, and expanded family tax allowances—are set to place lasting pressure on the budget.
According to Fitch, these steps will amount to 0.3% of GDP this year but could rise to as much as 1.2–2.1% next year, depending on the calculation.
Fitch also points to the extension of sectoral “windfall taxes” and higher burdens placed on banks as further signs of fiscal loosening. The analysts caution that additional spending measures may appear in the months leading up to the vote, continuing what they describe as a pattern of “campaign-driven fiscal expansion”.
Unpredictable policy environment undermines confidence
One of the strongest criticisms in the report concerns the government’s frequent and unpredictable adjustments to its budget targets and economic policy. Fitch argues that this undermines fiscal credibility, increases risk, and complicates long-term planning for investors.
The agency highlights that Hungary is unlikely to achieve a balanced primary budget (excluding interest payments). Instead, it forecasts a primary deficit of 0.4% this year and 1.4% in 2025, which could push the country’s debt ratio back onto an upward trajectory. Government officials continue to insist that public debt will stabilise at 73.5% of GDP, but Fitch projects an increase to 74.6% by 2027.
Weak growth and external vulnerabilities
Adding to fiscal concerns, Hungary’s economic performance remains subdued. Fitch predicts GDP growth of only 0.3% in 2024, effectively meaning that the economy will have flatlined over the 2023–2025 period. Growth is expected to pick up gradually—to 2.3% in 2026 and 2.6% in 2027—but these forecasts fall short of government expectations.
Beyond budgetary issues, the agency warns that Hungary continues to face significant external risks. These include exposure to global shocks, reliance on imported Russian energy and the economic effects of what Fitch calls “unorthodox” policy choices. The report also notes that governance indicators have deteriorated in recent years.
Political uncertainty ahead of the 2026 elections
Fitch’s analysts observe increasing political uncertainty as the 2026 election approaches. Recent polling gives an edge to the opposition Tisza Party, though the outcome remains unpredictable. Depending on the result, Hungary’s economic and foreign policy could shift in ways that impact investor confidence.
What could trigger a downgrade—or an improvement?
Fitch outlines several scenarios that could lead to a full downgrade to junk:
- continued rise in public debt without credible fiscal consolidation,
- persistently weak economic growth,
- or political and economic developments that spark adverse market reactions—such as significant forint depreciation.
On the positive side, stabilising the outlook would require evidence of a sustained decline in public debt, stronger institutional stability, and clearer, more predictable policymaking.
Hungary avoids immediate danger—but the risk is real
Hungary still maintains investment-grade status with both Fitch and Moody’s Investors Service, though the latter also assigns a negative outlook. Only S&P Global Ratings—where Hungary is already on the lowest rung of investment-grade—places the country directly on the threshold of junk.
For now, the credit agencies appear to be exercising patience, likely awaiting the budgetary correction that typically follows Hungarian election cycles. However, Fitch’s warning makes clear that without rapid and credible adjustments, the cost of that patience may soon rise sharply.
Fidesz is leading Hungary to the inevitable end called bankruptcy.