Hungary could still adopt the euro in 2032 despite a worsening budget deficit and rising public debt, according to the Eurasia Group. The risk consultancy expects drought damage and geopolitical shocks to put further pressure on public finances in the short term, but believes the country could enter the EU’s exchange rate mechanism by 2030.
Hungary’s budget deficit could rise to around 7.7–7.8% of gross domestic product (GDP) this year, according to a new assessment presented by Eurasia Group, one of the world’s largest political and economic risk consultancies, in London on Thursday.
The consultancy said the greatest pressures on the budget, particularly high oil prices and the damage caused by prolonged drought, stem from factors beyond the Hungarian government’s control.
Markets have already begun reacting to weaker deficit expectations over the past month. One indication is the rising cost of credit default swaps (CDS), financial instruments used to insure against the risk of a sovereign debt default, according to the group’s analysis.
Hungary’s public debt could approach 77% of GDP
Eurasia Group expects Hungary’s public debt-to-GDP ratio, which stood at 75.6% in the middle of the year, to approach 77% by the end of 2026. However, the consultancy noted that the need to borrow on the market to pre-finance European Union payments would also contribute to the increase.
Prime Minister Péter Magyar is reluctant to introduce policy measures that would be felt directly by voters. As a result, he is likely to favour additional taxes on large companies, broadly following the approach taken by his predecessor, Viktor Orbán.
The key difference, according to Eurasia Group’s London-based analysts, is that Magyar would present these measures as temporary sacrifices necessary to secure eurozone membership.
His target would be for Hungary to join the European Exchange Rate Mechanism II (ERM II) by 2030, a mandatory step towards adopting the euro.
If you missed it: An exact date of Hungary adopting the euro emerged with new roadmap proposed
Could Hungary join the eurozone by 2032?
Eurasia Group considers it likely that Hungary will enter ERM II by 2030. If that happens, it could pave the way for eurozone membership in 2032, as countries must spend at least two years in the mechanism before adopting the single currency.
Entering ERM II by 2030 would be a “major political success” for Magyar, the consultancy said. Adopting the euro in 2032 would also “cement Hungary’s position within the EU”, according to its assessment.
The group added that such a timetable could have positive effects on financial markets. For example, yields on Hungarian sovereign debt denominated in forints and euros could converge further, potentially lowering the cost of borrowing.
Other major London-based financial analysts have published similar assessments of Hungary’s public finances in recent reports.
Never miss a headline: join Daily News Hungary’s official WhatsApp channel!
Fitch also expects a high deficit this year
International credit rating agency Fitch Ratings recently examined public finances and the macroeconomic outlook across Central and Eastern Europe. In the Hungary section of its 24-page report, Fitch forecast that the country’s budget deficit would reach 7.3% of GDP this year.
However, the agency expects the deficit to fall to 5.8% of GDP in 2027.
Fitch also highlighted Hungary’s commitment to meeting the conditions for eurozone membership by 2030, describing it as a key anchor for the government’s medium-term fiscal consolidation plans.
Source: Hungarian News Agency (MTI)