Rating action

Scope Ratings GmbH (Scope) has today affirmed Hungary’s long-term local- and foreign-currency issuer and senior unsecured debt ratings at BBB. Scope has also affirmed the short-term issuer ratings at S-2 in local and foreign currency. All Outlooks remain Stable.

Hungary's credit ratings are underpinned by the following credit strengths: i) still-solid medium-term growth prospects, albeit estimated GDP growth potential has declined moderately; and ii) a robust structure of its external and public liabilities, along with an improved external position, which supports the country’s resilience to external shocks.

Hungary's credit ratings face constraints due to: i) a relatively elevated public debt with a high interest-payment burden; ii) a sustained fiscal deficit reflecting limited fiscal flexibility; iii) weak governance indicators and lingering uncertainty regarding the inflow of substantial EU funds; and iv) elevated vulnerability to external shocks.

For the updated report accompanying this review, click here.

Key rating drivers

Strong track record of robust growth with still-solid medium-term growth prospects. Hungary’s ratings are anchored by a history of robust economic growth, supported by foreign direct investment and European Union (EU) funding. Prior to the pandemic, Hungary achieved an average annual GDP growth of 4.2% from 2015 to 2019, according to Eurostat, driven by strong investment growth. The country is exposed to external developments as a highly open, trade-dependent economy with a reliance on energy-intensive industries and international supply chains.

After a contraction in real GDP of 0.8% in 2023 and a modest recovery of 0.6% in 2024, Scope expects real growth of 0.6% in 2025, somewhat lower than the government’s latest projection of 1%. Growth should then reach 2.0% in 2026 and return close to potential to 2.5% in 2027. The economic outlook is supported by some expected recovery in external demand, coupled with a gradual fiscal stimulus in Germany, Hungary’s main trading partner, a stabilisation of investments, and continued positive contributions from private consumption.

Hungary's longer-term growth trajectory remains solid, but downside risks are material. Scope projects potential growth at around 2.6% per year, moderately lower than its previous estimate, predominantly due to a lower contribution from investments. The growth outlook continues to be supported by foreign investment and the expected ramping-up of production of recent large-scale investments in the automotive sector, albeit with potential delays and some capacity under-utilisation. Scope expects that the US tariff rate of 15% on most of EU goods will weigh on external demand to some extent, but reduced uncertainty following the EU-US trade deal supports the investment outlook. Hungary’s goods exports to the United States were a moderate 4.1% of total goods exports in 2024, but the indirect impact could still be material, including via the impact on Germany. While German car manufacturers remain key players, diversification with global producers is broadening Hungary’s position within the global automotive supply chain, in particular for electric vehicles.

A robust structure of external and public liabilities and an improved external position, enhancing the country's resilience to external shocks. Hungary’s external balance showed a substantial improvement in 2023 and 2024, with the current account moving from a deficit of 9.2% of GDP in 2022 to a surplus 1.5% of GDP in 2024. This shift was driven by lower energy prices and reduced private domestic demand. Reserve coverage has also remained robust, with reserves standing at EUR 47.7bn in September 2025, up from EUR 46.0bn one year earlier. Coverage of short-term external debt at remaining maturity according to the IMF’s ARA metric reached around 110% in 2024, underscoring Hungary’s solid reserve adequacy, and providing a robust buffer for external financial obligations. Additionally, most of Hungary’s external liabilities consist of foreign direct investment and equity rather than debt, reflecting low rollover risk and thereby alleviating the vulnerabilities associated with the country's external debt burden. Gross external debt, at 87% of GDP in Q2 2025, has remained broadly stable in recent quarters. Moreover, a substantial volume of intra-company loans reduces rollover risk associated with foreign investment flows.

Finally, Hungary's public debt profile displays strong resilience to external shocks, supported by a strategic focus on domestic financing. Domestic institutions hold a significant portion of issued debt, with households accounting for 21.4% including through a well-developed domestic retail bond programme, lowering reliance on foreign capital. Moreover, the share of foreign currency-denominated central government debt at 30.7% as of end of September 2025 remains only moderately above the debt management agency’s 30% strategic threshold.

Credit challenges: a relatively elevated public debt burden and sustained budget deficits, weak governance metrics with lingering uncertainty regarding the inflow of substantial EU funds, and vulnerability to external shocks.

Hungary’s public debt is relatively elevated, with a debt-to-GDP ratio at 73.5% in 2024, which Scope projects to increase to around 74% at end-2025 and broadly stabilise thereafter. This is driven by high nominal GDP growth and a broadly balanced primary fiscal position, even though a high interest-payment burden, projected at 4.3% of GDP on average for 2026-2030, remains a structural constraint on budgetary performance. Scope expects fiscal consolidation to proceed only gradually, but to provide sufficient support for a broadly stable debt trajectory in the medium term.

The 2024 general government budget deficit of 5.0% of GDP marked a material improvement from the 6.8% recorded in 2023, but still exceeded the government target of 4.5%. The improvement YoY was driven by a decline in the primary deficit to 0.1% of GDP from 2.1% in 2023. However, high interest expenditures on retail inflation-linked bonds led to an increase in the interest payment burden to almost 5% of GDP last year from 4.7% in 2023 and 2.8% in 2022. Inflation-linked interest expenditure is expected to significantly decline by around 1pp of GDP this year due to lower underlying inflation data.

For 2025, Scope expects a deficit of 4.7% of GDP, moderately higher than the most recent government forecast of 4.3% of GDP, reflecting continued weakness in economic activity. Nevertheless, budgetary performance continues to benefit from extra profit taxes introduced in recent years on the banking, insurance, retail and energy sectors. At the same time, the projections also consider deficit-increasing measures, such as the increase in the family tax allowance, the personal income tax exemption for mothers with a gradual implementation timeline and subsidised loan programmes, including the Home Start Programme, among other measures. In coming years, Scope projects a gradual reduction in the general government fiscal deficit to around 4.2% of GDP by 2030.

Hungary’s credit ratings are further constrained by weak governance indicators and remaining uncertainties regarding substantial EU fund inflows. The country has access to only EUR 12.8bn out of EUR 21.7bn in 2021-2027 Cohesion funds and only received pre-financing of EUR 920m in 2024 for the Recovery and Resilience Plan. Thus, EUR 6.4bn in non-repayable support and EUR 3.1bn in loans under the Recovery and Resilience Facility and RePowerEU allocations and EUR 9.0bn in Cohesion funding remain suspended. Reflecting limited progress to unlock funding, the European Commission cancelled around EUR 1bn in suspended Cohesion funding in January 2025. Further, the European Court of Justice imposed a daily penalty of EUR 1m since June 2024 in addition to a EUR 200m lump-sum payment relating to Hungary’s failure to comply with EU law on asylum policy.

Finally, Hungary’s resilience to external economic shocks, while improved, remains constrained by its high dependence on external demand, reliance on foreign capital, and substantial energy import dependency. These vulnerabilities necessitate stronger economic buffers than those of peer countries to mitigate global economic and geopolitical risks. This is further emphasized by Hungary's limited monetary policy flexibility compared to major central banks.

As a small, open economy, Hungary is highly reliant on demand from EU trading partners. A slower-than-expected recovery in external demand poses a risk to GDP growth. Additionally, the country’s dependency on foreign capital, including for the automotive and manufacturing sectors, exposes it to global investor sentiment shifts. Delays in export-oriented projects, further delays or cancellation of EU fund disbursements could also worsen the country’s external accounts and limit economic growth. While Hungary’s reserves are currently deemed adequate, further accumulation would strengthen its buffer during periods of heightened risk. Hungary’s reliance on imported energy, particularly from Russia, compounds these vulnerabilities. Russian gas accounts for most of Hungary’s gas imports, leaving the country susceptible to supply disruptions, despite ongoing diversification efforts, such as the recent signature of a long-term contract for LNG gas between Hungary’s MVM Group and France’s ENGIE.

Rating-change drivers

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

Downside scenarios for the ratings and/or Outlooks are (individually or collectively):

1. A significant worsening in the economic growth outlook.
    
2. A protracted fiscal deterioration materially weakened debt sustainability.
    
3. External metrics deteriorated significantly, and reserve adequacy weakened substantially, for example, due to cuts in the disbursement of EU funds and/or notably constrained energy supplies or supply chain disruptions.

Upside scenarios for the long-term ratings and/or Outlooks are (individually or collectively):

1. Public finances improved, resulting in a significant reduction in public debt over the medium term;
    
2. External metrics improved materially, supporting reserve adequacy.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s Sovereign Quantitative Model (SQM) provides a first indicative credit rating of ‘bbb+’ for Hungary, as confirmed by the rating committee. This ‘bbb+’ first indicative rating receives no uplift from the SQM’s reserve-currency adjustment and no negative adjustment from the political-risk adjustment. This results in a final SQM indicative credit rating of ‘bbb+’ for Hungary. On this basis, the final SQM quantitative rating of ‘bbb+’ is reviewed by the Qualitative Scorecard (QS) and can be adjusted by up to three notches depending on Hungary’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states identified by the SQM.

Scope identified the following QS relative credit weaknesses of Hungary: i) resilience to short-term shocks; and ii) governance factors. Conversely, Scope did not identify any QS relative credit strengths for Hungary. On aggregate, the QS generates a one-notch negative adjustment affecting Hungary’s credit rating, resulting in the final BBB long-term ratings. A rating committee has discussed and confirmed these results.

Factoring of environmental, social and governance (ESG)

Scope explicitly factors in ESG issues within its ratings process via the sovereign-rating methodology’s stand-alone ESG sovereign-risk pillar, which holds a significant 25% weighting under the quantitative model (SQM) and 20% weight under the methodology’s qualitative overlay (QS).

In terms of environmental factors, Hungary has a mid-range SQM score. While scores for emission intensity compare favourably to peers, Hungary receives mid-range scores for natural disaster risk and the ecological footprint of consumption compared with available biocapacity. The country faces high transition risks due to the transformation of its coal region and energy-intensive industries, with electricity consumption expected to rise. Further, Hungary continues to rely on an elevated amount of Russian fossil fuel imports, which poses a high exposure to energy supply shortages amid uncertainty surrounding the Ukraine conflict, but some diversification efforts are ongoing.

In social risks, Hungary scores low in the SQM for old-age dependency but compares favourably against peers regarding income inequality and labour force participation. Despite improvements in the labour market, employment gaps persist. Housing inadequacy and a shortage of affordable rental housing hinder social mobility. Adverse demographic trends pose challenges to long-term growth prospects.

In governance risks, Hungary scores poorly relative to peers, with a 'weak' QS adjustment. The country's ranking in Transparency International's Corruption Perceptions Index is the lowest among EU member states, reflecting governance issues related to the rule of law and judicial independence. This has resulted in a delay in the disbursement of substantial EU funds.

Rating Committee
The main points discussed by the rating committee were: i) domestic economic risk; ii) public finance risk; iii) external economic risk; iv) financial stability risk; v) ESG-related risk; and vi) rating peers.

Methodology
The methodology used for these Credit Ratings and Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and Outlooks is (Sovereign Quantitative Model Version 4.1) available in Scope Ratings’ list of models, published under scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Julian Zimmermann, Director
Person responsible for approval of the Credit Ratings: Carlo Capuano, Executive Director
The Credit Ratings/Outlooks were first released by Scope Ratings in January 2003. The Credit Ratings/Outlooks were last updated on 8 November 2024.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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