IMF Executive Board Concludes 2025 Article IV Consultation with Hungary

The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Hungary.[1] The authorities have consented to the publication of the Staff Report prepared for this consultation.

The Hungarian economy is at a challenging juncture. Output has stagnated over the past 3 years, while inflation remains well above the central bank’s 3 percent target. Regulatory measures—such as price, interest and margin caps, along with windfall taxes and subsidized lending schemes—have distorted market signals and added uncertainty. Despite significant fiscal adjustment in recent years, public debt is elevated given high financing costs.     

Modest Consumption

High domestic and external uncertainty are expected to continue weighing on the outlook. Modest consumption-driven growth of 0.7 percent is expected in 2025 underpinned by favorable wage dynamics. Growth is projected at 2 percent in 2026 on a recovery in investment and a positive impulse from German fiscal expansion. Inflation is expected at 4.5 percent in Q4:2025 and then to gradually decelerate to the central bank’s 3 percent target by 2027. Under current policies, the fiscal deficit will remain around 4½ percent of GDP through the medium term, with debt-to-GDP rising to around 79 percent by 2030.

Risks are tilted to the downside. Deepening geoeconomic fragmentation amid a further escalation in trade measures, intensification of regional conflicts, a failure to enact a credible fiscal adjustment, and cancelation of EU funds, pose significant downside risks.

Executive Board Assessment[2]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Hungary’s economic resilience but noted that the outlook remains subdued amid weak investment and above target inflation. Noting downside risks and high external uncertainty, Directors stressed the need for strong reform efforts to promote macroeconomic stability, rebuild buffers, and boost productivity.

Directors emphasized the importance of additional fiscal effort to rebuild fiscal buffers and ensure debt sustainability. They welcomed the authorities’ medium term goal of achieving a structural primary surplus, which would help reduce the headline deficit and place public debt firmly on a downward path. In that context, Directors underscored the importance of high quality fiscal adjustment. They called for broadening the tax base by reducing exemptions and rationalizing spending—particularly energy subsidies—while reallocating savings to strengthen targeted social support. Directors also stressed the need for reforms to contain long term pension and healthcare spending pressures and improve monitoring and mitigation of fiscal risks, including those stemming from state owned enterprises. Contingency planning, including in case of additional defense spending, would be important.

Directors agreed that the monetary policy stance should remain tight to return inflation to target. They supported a data dependent approach amid high uncertainty and highlighted the role of continued exchange rate flexibility and adequate reserves in mitigating external shocks. Directors agreed on the need to phase out price, fee, and margin controls to avoid market distortions and strengthen the effectiveness of monetary policy.

Directors considered that the financial sector is broadly sound, but urged continued vigilance. They noted that while banks are well capitalized, liquid and profitable, vulnerabilities remain, including from risks in the corporate sector, banks’ growing sovereign and FX exposures, and buoyant housing prices. Directors also recommended phasing out housing related incentives to contain price pressures and concurred that differentiation in borrower based macroprudential measures should be introduced only on financial stability grounds.

Directors emphasized the need for structural reforms to boost productivity and competitiveness. Directors also stressed the importance of improving energy security and expanding the use of renewables to strengthen economic resilience and advancing governance reforms to foster a more predictable business environment and unlock EU funding.

[1]Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2]At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:http://www.IMF.org/external/np/sec/misc/qualifiers.htm.