The European Commission has delivered a critical assessment of Hungary’s public debt outlook in its latest Debt Sustainability Monitor (DSM), financial website Portfolio.hu writes.

Although short-term financing conditions remain manageable, the country faces a steadily worsening debt trajectory over the medium and long term unless significant fiscal adjustments are made, it added.

According to the Commission’s latest Debt Sustainability Monitor (DSM), Hungary’s general government gross financing needs are projected to hover around 15% of GDP in 2026–2027. Although recent government bond auctions have been successful and Hungary retains investment-grade status, markets continue to demand a significant risk premium. At the end of 2025, the yield spread between Hungarian 10-year government bonds and the German Bund stood at 408bps. 

The report stresses that under unchanged fiscal policies, Hungary’s debt-to-GDP ratio would enter a sustained upward trajectory, reaching 102.5% by 2036. The deterioration is driven by a structurally negative primary balance and an increasingly adverse "snowball effect," as interest costs outpace the combined impact of economic growth and inflation.

According to the latest data, state debt stood at 74.9% of GDP at the end of 2025, the highest year-end level since 2021, rising for the second consecutive year. Since 2020, nominal debt has nearly doubled, and the debt ratio has increased by 10pp as the government loosened fiscal policy while economic growth stalled, partly due to the suspension of EU funding.

Even as Hungary’s Basic Law compels the government to reduce annual debt to 50% of GDP, the government has repeatedly suspended this rule under a continuous state of special legal order in place since 2015, allowing it to govern by decree.

From 2027 onward, the structural primary balance, adjusted for cyclical and one-off factors and excluding interest payments, is projected to remain in deficit at around 0.9% of GDP, partly due to ageing-related expenditure pressures.

The Commission projects that the debt ratio will accelerate after 2028, climbing from 76.7% to 90% by 2033 and exceeding 100% three years later.

Interest expenditures are expected to become the dominant driver of debt dynamics. While inflation and real growth initially help reduce the debt burden, their mitigating effect weakens over time, whereas interest payments are projected to add as much as 6.6pp to the debt ratio by 2036.

Hungary’s gross financing requirement is also forecast to rise steadily, from 13.7% of GDP in 2024 to 21.3% by 2036, reflecting both higher rollover needs and sustained deficits.

Stress scenarios indicate further vulnerabilities. In the event of a more adverse interest-growth differential, the debt ratio could rise to 110.8% of GDP by 2036. A weaker primary balance would result in a ratio of 108.6%.

The Commission’s long-term sustainability indicators point to significant fiscal adjustment needs. The debt stabilisation indicator (S2) suggests that a permanent improvement of 6.7pp of GDP in the structural primary balance would be required from 2027 to stabilise debt over the long run. Of this, 4.5pp stem from ageing-related costs, including pensions, healthcare and long-term care.

The Commission concludes that while there is no immediate financing crisis, debt dynamics will not stabilise automatically under current policies. Without structural fiscal correction, Hungary faces a steadily increasing debt burden and financing need in the coming decade.