Hungary’s Struggling Economy: Weaker Forint and Long-Lasting Taxes
Fitch Ratings Affirms Hungary’s Investment Grade Rating Despite Challenges
Fitch Ratings recently affirmed Hungary’s investment grade sovereign rating, following similar actions by Moody’s and Scope Ratings. However, the American credit rating agency has identified significant challenges in Hungary’s economy, particularly related to the Orbán cabinet and its unorthodox economic policies.
According to a report by portfolio.hu, Fitch has maintained Hungary in the BBB category with negative prospects since January 2023. The agency’s analysts predict a decrease in Hungary’s budget deficit in 2024, but anticipate an increase in state debt. Fitch also does not expect the Orbán cabinet to rescind the so-called excess profit taxes, as the government relies heavily on this revenue for pensions and public services.
Fitch has highlighted the decreasing global demand for batteries as a risk factor, potentially hindering economic growth in 2025-2026. Additionally, the agency foresees a potential clash between the EU and Hungary due to Brussels’ policies regarding the import of Chinese electric cars. This concern arises as Chinese automaker Polestar is set to enter the Hungarian market in 2025, as per a recent announcement.
One of the key concerns raised by Fitch is Hungary’s negative prospects due to the state budget deficit and high level of state debt. These challenges could pose threats to the country’s economic stability and growth in the coming years.
On a positive note, Hungary has made significant progress in whitening its economy since 2010, according to the country’s finance minister, Mihály Varga. Reforms to the tax system, including reductions in personal income tax rates, corporate tax rates, and payroll taxes, have contributed to this progress. Hungary now ranks 11th out of the 38 OECD countries in terms of tax efficiency.
Despite the challenges ahead, Hungary remains committed to improving its economic outlook and strengthening its position within the European Union. With ongoing reforms and strategic initiatives, the country aims to overcome obstacles and ensure sustainable growth in the years to come.
