EU Funds Could Ease Hungary’s Debt Burden, but Structural Problems Remain

The 5,900 billion forints (16.2 billion euros) in EU funds now available to Hungary could provide significant assistance in stabilizing the country’s public finances, but it will not, on its own, solve the economy’s structural problems, according to an analysis published Tuesday by GKI Economic Research Co.

Reducing debt and financing burdens may be the greatest direct benefit of these funds, but further measures may be needed to stimulate economic growth.

EU subsidies can stimulate the economy through investments; however, their impact is mitigated by the fact that a portion of the funds is used to reimburse already completed projects retroactively, MTI reported based on the analysis. The total amount of these reimbursements is 969 billion forints (2.66 billion euros), thus these payments do not create new demand in the real economy. In addition, many EU investments have high import requirements, meaning that a portion of the funds is spent on purchasing foreign products and services, therefore, they do not directly strengthen the Hungarian economy.

According to GKI’s calculations,

EU funds could boost GDP growth by 0.1–0.2 percentage points in 2026 and 2027, which is a modest impact given the size of the available funds.

The budget had previously pre-financed projects under the EU Recovery and Resilience Facility (RRF) in the amount of 2,187 billion forints (6.01 billion euros), partly through market-based borrowing. The receipt of the related grants therefore primarily serves to reimburse expenses already incurred, as well as to reduce public debt and financing needs.

Based on the Hungarian National Bank’s (MNB) June estimate, the available EU funds could reduce the public debt-to-GDP ratio by 1.1 percentage points in 2026. The impact on the budget deficit may be smaller: the total net effect of the RRF agreement could improve the 2026 balance by 491 billion forints (1.35 billion euros), or about 0.5 percent of GDP.

Access to EU funds and the resolution of ongoing disputes with the European Union (EU) could reduce Hungary’s risk premium, which could result in lower government bond yields and interest expenses. According to GKI’s analysis,

gross interest expenses could fall from 3.8 percent of GDP to 3.1 percent by 2028, assuming current yield levels.

The strengthening of the forint also has a positive effect on public debt: a 10-forint appreciation in the exchange rate alone could reduce the debt-to-GDP ratio by 0.7 percentage points. In addition, EU subsidies could take over the financing of certain investments from the domestic budget, thereby freeing up resources for other expenditures.