BUDAPEST, HUNGARY / RankWire.AI / – In Hungary, the government announced in August 2023 that it will stick to a 7.5% deficit of gross domestic product for the 2026 budget, despite revising its spending plans. The Hungarian Finance Ministry stated that the revised budget reflects weaker fiscal conditions, severe drought, and increased energy costs. Originally, the budget aimed for a deficit of 3.7% of GDP. Subsequent analysis indicated that the shortfall could have reached 8.3% without further measures. The updated framework ensures the deficit remains below that level while accommodating new expenses.
The government has allocated approximately 400 billion forints toward measures aimed at improving fiscal stability. Additionally, around 300 billion forints are planned in extra savings from state operations through the rest of 2026. In total, these actions amount to about 700 billion forints in spending cuts. Officials confirmed that the revised plan will sustain funding for essential public programs while adjusting other expenditures. The draft amendment was submitted for preliminary review to the Fiscal Council on August 17, ahead of its scheduled submission to parliament.
A newly established 500 billion forint Havária emergency reserve is part of the revised budget. This fund is intended to cover unforeseen costs primarily linked to drought conditions and disruptions within the energy sector. During the summer, Hungary experienced extremely low water levels on the Danube, which increased pressures on agriculture, water management, and power generation. These conditions also impacted electricity supply and prompted the government to account for additional energy-related expenses. The reserve provides the amended budget with a dedicated allocation to manage these pressures.
Low Danube water levels intensify energy supply concerns
The reduced water levels of the Danube decreased output at Hungary’s Paks nuclear power plant, a major source of the country’s electricity. Because the plant relies on Danube water for cooling, prolonged low water conditions pose operational challenges. Production sharply declined during August’s most difficult period before conditions improved. Later, engineering efforts and higher water levels facilitated a gradual increase in output. The disruption led to higher electricity costs as Hungary had to rely more heavily on imported power while domestic nuclear generation remained limited.
The amended spending plan continues to support several social initiatives previously announced by the government. These include a school-start subsidy of 100,000 forints for roughly 400,000 children from eligible households. The package also eliminates value-added tax on prescription medicines and reduces the tax rate on firewood. Under the new framework, funding for the social firewood program will double. Officials have incorporated these measures alongside the emergency reserve and the broader expenditure reductions planned for the rest of the year.
Revised fiscal outlook projects an increase in public debt ratio
Hungary now forecasts that public debt will reach 77.5% of GDP in 2026, a rise from the previous estimate of 74.6%. Authorities attributed the increase to the larger budget deficit and weaker nominal GDP compared to assumptions made during the initial plan’s development. As of July, the central government recorded a deficit of 2.858 trillion forints, representing 67.7% of the annual deficit target set by the current budget law. These figures highlight the extent of the fiscal adjustments incorporated into the revised plan.
Performance of the budget improved from May to July after a substantial shortfall during the first four months. The government reported a combined surplus of 991.9 billion forints over those three months, with July alone posting a surplus of over 500 billion forints, according to official fiscal data. The amended 2026 budget is scheduled for submission to parliament by August 31. It maintains the 7.5% deficit goal, accounting for drought-related costs, energy pressures, spending cuts, and the newly established emergency fund.