S&P Affirms Hungary Sovereign Rating with Negative Outlook

S&P Global Ratings affirmed its 'BBB-/A-3' long- and short-term foreign and local currency sovereign credit ratings on Hungary in a scheduled review, the outlook remains negative, MTI reports.

"The negative outlook reflects our view of risks to Hungary's fiscal and economic stability over the next two years. Large budgetary deficits, high debt, and elevated interest expense continue to limit Hungarian authorities' policy flexibility to manage endogenous and exogenous pressures," S&P said.

S&P could lower the ratings if fiscal performance is weaker than forecast and the government fails to stabilize public finances over the next two years, or if external pressures compound, for example, through a more severe and prolonged energy price shock.

The outlook on the ratings could be revised to stable if reforms strengthen Hungary's institutional and fiscal frameworks, underpinning its eurozone accession efforts, the agency added.

S&P acknowledged the new government's "significant latitude" to legislate policy changes on fiscal, investment, economic, judicial, procurement and social policies, as well as expectations it will take steps to unlock Hungary's European Union funding, but said uncertainty on public finances "remains considerable."

The rating agency said Hungary's general government deficit could reach 6.8% of GDP in 2026, due to pre-election spending and the cost of household energy subsidies, but it does not expect the fiscal cost of the energy and fuel subsidy regimes to exceed 1.5% of GDP for the year or erode the government's strategic reserves.

S&P forecasts a deficit of 5.25% of GDP for 2027.

S&P highlighted the impact of the stronger forint and a decline in yields on government securities amid a post-election market rally, indicating strong investor demand for Hungarian sovereign debt and lower perceived risk premiums. It estimated state debt levels, relative to GDP, could peak at 74% in 2027, before starting to decline.

"Despite elevated debt, we see no immediate government funding risks. The government has access to a broad array of tested domestic and foreign financing sources, including the local banking sector, a sizable domestic retail bond program, and regular issuance on international capital markets, including Eurobonds and green bonds denominated in euro, renminbi and yen," S&P said.

The rating agency sees Hungary's GDP growth accelerating to 1.6% in 2026 and 2.4% in 2027, driven by domestic demand, a recovery in exports, and improved confidence. It noted that FDI has expanded Hungary's electric vehicle and battery manufacturing sectors, with new capacity coming online in 2026-2027, but said those sectors' ability to boost export capacity and industrial synergies depends heavily on external demand. Beyond the EV sector, medium-term growth remains contingent on Germany's economic performance, global trade tariff developments, and the impact of geopolitical tensions on energy and import prices, it added.