Hungary’s Fiscal Council Raises Alarm Over 2026 Budget Draft

Hungary’s Fiscal Council has voiced sharp concerns over the government’s 2026 draft budget, warning that it is built on overly optimistic economic forecasts and fraught with multiple financial risks. The Council pointed to low fiscal reserves, uncertainty over EU funding, and the potential impact of an intensifying US-led trade war as key vulnerabilities.

The government, led by Prime Minister Viktor Orbán, projects economic growth of 4.1% next year - a figure that significantly exceeds the International Monetary Fund’s 2.6% estimate and that of S&P Global, which recently revised Hungary’s credit rating outlook from stable to negative, saying growth would be only 2.5% in 2026. The budget is based on an average inflation rate of 3.6%, a fiscal deficit of 3.7% of GDP under the ESA standard, and assumes a forint-euro exchange rate of 400.

The Council criticized the growth assumptions, citing weak first-quarter GDP data and the growing risk of global trade disruptions as undermining factors. It warned that these could destabilize the budget’s foundations. The advisory body, comprising the heads of the State Audit Office, the central bank, and a president appointed by the country’s head of state, cannot veto the budget. Hungary’s high export dependence makes it particularly susceptible to external economic shocks, the Council noted.

Among the flagged concerns were weaker-than-expected revenues and lingering doubts over access to EU funds. Hungary remains cut off from both the Recovery and Resilience Facility and cohesion funds due to ongoing rule-of-law disputes with Brussels. Failure to meet the EU’s required “super milestones” could deepen the cash-flow deficit unless countered by either spending cuts or alternative revenues.

While the Council did not model the effects of the trade war in detail, it cautioned that Hungary’s manufacturing sector - heavily reliant on exports - faces potential setbacks that could chill investment. Similar warnings came from the central bank, which said it would maintain its key interest rate amid global volatility and trade-related inflation pressures. Citing risks to emerging markets and Hungary's financial stability, Governor Mihály Varga underscored the need for a “cautious and patient” monetary stance.

Nevertheless, the Council acknowledged that resilient domestic consumption - buoyed by strong employment, rising real wages, and government support - could offset some downside risks. It also pointed to fiscal stimulus measures in Germany and other major EU economies as possible external stabilizers, assuming EU fiscal rules remain accommodating.

In response, the Council urged the government to expand its fiscal reserve for unforeseen events and adopt more conservative growth and revenue projections. It also challenged the credibility of the wage growth estimates underpinning the budget, noting that unexpected shifts in inflation or average earnings could trigger policy revisions.

Despite these concerns, the government is pressing ahead with efforts to secure early parliamentary approval for the 2026 budget, likely in June, citing the benefits of predictability. The National Economy Ministry confirmed that the government will heed the Council’s advice by increasing the contingency reserve from HUF 50 billion to HUF 192 billion. To maintain the budget balance, the same amount will be trimmed from expenditures.

However, the ministry maintained that there is currently no need to adjust the macroeconomic assumptions underpinning the draft. A reassessment may take place over the summer, officials said.

Last month, the government revised its 2025 inflation forecast upward - from 3.2% to 4.5% - while cutting GDP growth expectations from 3.4% to 2.5% and raising the deficit target to 4%. The widening fiscal gap reflects continued tax relief for households, rising energy subsidies, and higher debt servicing costs, especially on inflation-linked bonds, according to the Economy Ministry.