Hungary’s Pre-Election Spending Sparks Economic and Budgetary Concerns

Hungary’s government has acknowledged that it is likely to miss its budget target for 2026, following a wave of pre-election fiscal promises by Prime Minister Viktor Orbán. The Economy Ministry confirmed on Thursday that the country’s budget deficit is expected to reach 3.5% of GDP, surpassing the earlier 2.9% goal, which would have brought it within the European Union’s fiscal limit.

S&P Global Ratings has raised concerns about the economic risks posed by the government’s pre-election spending. The credit ratings agency, which currently rates Hungary’s debt just one notch above junk, warned that increased spending could fuel inflation and further strain fiscal consolidation efforts.

“The parliamentary elections in 2026 could lead to new tax and spending pledges,” said S&P Global Ratings credit analyst Gabriel Forss. “Additionally, weaker fiscal outcomes would likely complicate the Hungarian central bank’s capacity to meet its inflation targets, which would affect fiscal and monetary policies alike.”

Orbán’s government has announced billions of dollars in tax breaks for mothers and pensioners, set to be phased in starting this October. The move comes as his Fidesz party trails in the polls, with elections scheduled for spring 2026. This latest round of fiscal measures mirrors the pre-election spending spree of 2022, when the government distributed 2 trillion forints ($5.2 billion) in tax rebates, helping Orbán secure a fourth consecutive term. However, the aftermath saw Hungary’s inflation rate surge to the highest in the EU and nearly led to a collapse of the forint.

Hungary remains under the EU’s excessive-deficit procedure, meaning it could face fines if it fails to meet its deficit-reduction commitments. While the government still aims to lower this year’s deficit to 3.7% of GDP, the newly revised 2026 target raises concerns about Hungary’s ability to meet fiscal discipline requirements. Deutsche Bank strategist Oliver Harvey cautioned in a client note that “fiscal vulnerability remains acute”, adding that he remains bullish on the Polish zloty versus the forint.

Investor confidence in Hungary’s fiscal management has weakened, particularly as the country struggles with volatile economic conditions. The forint’s depreciation in 2024 has already increased Hungary’s general government debt by 1.4 percentage points of GDP, according to S&P. The credit ratings agency also noted that Hungarian government bond yields and the currency’s exchange rate have been highly sensitive to economic policy decisions.

Beyond fiscal concerns, the government has also signaled plans to curb retailer profits in an attempt to rein in food inflation, a key election issue amid Hungary’s ongoing cost-of-living crisis. The potential reintroduction of price caps could further disrupt market stability, a policy approach that previously led to supply shortages and heightened economic uncertainty.

Additionally, Orbán’s Cabinet unveiled a lifetime tax-break plan for mothers, estimated by the Economy Ministry to cost $2.4 billion annually. This, along with the broader fiscal commitments ahead of the election, has led S&P to project that Hungary’s public debt-to-GDP ratio will peak in 2026, making it increasingly difficult to return the budget deficit to the 3% threshold.

Further budgetary slippage could impact investor sentiment and market stability. While the forint has been trading at a four-month high against the euro, analysts warn that as the election nears, it risks a relapse toward the selloffs seen in previous years. S&P cautioned that excessive government spending could exacerbate market instability and complicate Hungary’s fiscal consolidation efforts.

“We note that Hungarian government bond yields and the forint foreign exchange rate have been sensitive to Hungary’s economic policy developments,” S&P stated. “This suggests market reaction to government overreach could further complicate consolidation efforts.”