S&P Warns Hungary’s Next Government Must Cut Social Spending After Election

Credit rating agency S&P Global warns that whoever wins Hungary's April 12 parliamentary election will need to reduce social spending to stabilize government finances. The country's budget deficit has already reached nearly 40% of its annual target in just the first two months of this year.

Credit rating agency S&P Global is cautioning that Hungary’s next government will face tough financial decisions following the country’s April 12 parliamentary election, requiring cuts to social programs to stabilize public finances amid global economic pressures.

The European nation’s budget shortfall has already hit nearly 40% of its yearly projection within the initial two months of this year, as longtime Prime Minister Viktor Orban has increased government spending before facing voters. The veteran politician confronts his most serious electoral challenge in his 16-year tenure.

According to S&P Global, failure to rebalance the country’s medium-term financial outlook following the elections, combined with mounting external economic pressures, could result in a credit rating downgrade.

“We would anticipate that the incoming government after the 2026 election (regardless of the government composition) will need to engage in consolidation efforts to rein in the trajectory of social spending,” S&P told Reuters in an emailed reply to queries.

Prime Minister Orban has maintained that no austerity measures will be necessary after the election to address the budget gap, which has surpassed government projections in recent years and is projected at approximately 5% of economic output.

His center-right challenger Peter Magyar is counting on rapidly accessing billions of euros in European Union funding, implementing anti-corruption measures, and introducing a wealth tax to strengthen government finances.

S&P noted that recent worldwide economic difficulties are putting downward pressure on its 2.5% growth projection following three years of economic stagnation. Goldman Sachs reduced its Hungarian growth forecast to 1.6% from 1.9% on Monday, citing the global energy price surge.

“Our current negative outlook to Hungary’s ‘BBB-‘ rating reflects the potential risk that its fiscal performance could prove materially weaker than our forecasts,” S&P said.

The rating agency indicated that the energy price crisis could increase both inflation and government costs for Hungary due to the economy’s heavy reliance on energy. S&P does not anticipate Hungary will receive funding from the EU’s pandemic recovery program because of timing limitations.

Fitch Ratings stated earlier this month that addressing sluggish economic growth and the decline in public finances and policy credibility would be the primary obstacles for Hungary’s incoming government following greater-than-expected fiscal stimulus before the election.