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EC: Fiscal stress in Hungary limited, but some risks in medium term

Hungary is not likely to experience significant fiscal stress in the short-term, but there could be medium risks in the medium term, according to the “2015 Fiscal Sustainability Report” published by the European Commission today.

The EC report made note of net public debt as well as the net international investment position as posing potential short-term challenges. It also noted that the share of debt denominated in foreign currency, the share of debt owned by foreign investors and the share of non-performing loans in the banking sector could cause vulnerability in the short-term. These risks and currency fluctuations, however, could be mitigated by the conversion of FX retail loans into forint loans among other factors, the report added.

“Medium risks appear, on the contrary, in the medium term from a debt sustainability analysis due to the still moderately high stock of debt at the end of projections (2026), and the sensitivity to possible shocks to nominal growth, interest rates and the government primary balance,” according to the EC.

Projections regarding low medium-term risks were caused in large part by positive projected developments on aging. “Overall, Hungary appears to face medium fiscal sustainability risks in the medium term,” the report noted, adding that there appeared to be no sustainability risks for Hungary in the long term.