Hungary’s medium-term fiscal plans are missing significant information and are based on unreliable data. European Commissioner for Economy and Productivity Valdis Dombrovskis said in a letter to Finance Minister Mihály Varga, according to Euronews. Hungary submitted its report on November 4, a few days after the deadline.

"At this stage, there are still important elements missing, or requiring further adjustment and specification, for the Commission to finalise its assessment," said Dombrovskis. The Commission also highlighted issues with data on economic growth, inflation and interest expenditure, stating that deviations from its own methodology need to be “duly justified”.

According to Euronews, the Commission’s assessment of the report is expected to take longer due to the extent of the missing information. The deadline, initially set for December 12, could be extended to mid-January 2025.

After relaxing rules during the pandemic, the EU’s Stability and Growth Pact imposes strict fiscal rules, marking the return to the Maastricht criteria from 2024. Outstanding government debt should not exceed 60% of annual economic output (GDP), and the budget deficit should be no more than 3% of GDP.

The Commission granted extra time to five other countries, including Germany, preparing for early elections, and Belgium, which is still struggling to form a government.

The European Commission initiated an Excessive Deficit Procedure (EDP) against Hungary this summer after the budget deficit reached 6.7% of GDP in 2023. Under the procedure, the Commission proposed that the deficit be reduced to 3.9% by 2025. However, the leaked letter suggests the EU considers Hungary’s plan, based on the submitted documentation, insufficient to meet the target.

In the report published to the EC last month, the government revised its GDP projections for 2024 to 0.8%, down from 1.5%. Growth is expected to rise to 3.4% in 2025 and from 2026 onwards, it could sustainably exceed 4%, according to the report, which also highlighted risks to this growth trajectory. These include geopolitical tensions and competitive challenges in the EU, particularly Germany’s structural economic difficulties. New production capacities in the manufacturing sector are expected to have a positive impact on exports and GDP from the second half of 2025, with potential follow-up effects in subsequent years.

The government also outlined the potential impacts of its new economic stimulus plan. The SME development programme, named after late entrepreneur Sandor Demjan, will channel some HUF1.4 trillion (€3.4bn) in financing through loan subsidies, capital financing and grants. These measures are expected to help SMEs grow in size, expand into foreign markets with new technologies and innovation, and overall enhance their productivity.

The cabinet also vowed to restore fiscal discipline and achieve macroeconomic stability by cutting the deficit from 4.5% of GDP in 2024 to 3.7% in 2025 and below the 3% threshold in 2026. The structural primary balance, excluding interest payments, is expected to improve steadily from 2026 to 2028, with an annual adjustment of 0.18% of GDP.

The report assumes debt financing costs, currently the highest in the EU, are forecast to decline from 4.8% of GDP in 2024 to 3.8% in 2025 and further to 3.5%, 3.3%, and 3.1% between 2026 and 2028.

The government is also committed to reducing the national debt ratio by at least 0.5pp annually through significant spending cuts and revenue-enhancing measures. These include new tax policies targeting the banking and energy sectors and delaying certain public investments to alleviate budgetary pressure.

The government has set net expenditure growth targets of 4.9% in 2024 and 6.1% in 2025, tapering to an average of 4.2% annually between 2026 and 2028. The European Commission’s reference scenario outlines a similarly strict growth trajectory, ensuring a steady decline in debt levels.

The fiscal forecast assumes average annual inflation of 3.7% in 2024, 3.2% in 2025 and around 3% from 2026 onwards. These projections are based on rising household consumption and a slow recovery in investment, which could be boosted by falling inflation and improving real incomes.

Discussions on resolving the issues raised by the European Commission including the expenditure limits are ongoing, a state secretary of the Finance Ministry told financial website Portfolio.hu.

The finance ministry noted that the EU executive has six weeks to evaluate the document. Several countries – Austria, Belgium, Bulgaria, Germany and Lithuania – have yet to submit their medium-term fiscal plans. It stressed that Hungary remains committed to fiscal discipline, economic neutrality, ongoing major investments, and the growth-stimulating effects of its 21-point action plan.