The climate-fiscal timebomb: Hungary

08 March 2026

Fiscal outlook

Hungary recorded a 5% deficit and a debt-to-GDP ratio of 73.5% in 2024. Hungary remains under the EU’s excessive deficit procedure (EDP), after running a deficit of nearly 5% of GDP in 2024, with the Council of the European Union requiring gradual correction by 2026. The European Commission’s June 2025 approval of Hungary’s long-delayed budget plan unlocked EU funds but did not lift the EDP.

Deficit measures the level of borrowing in a given year. Debt-to-GDP compares the total public debt to the size of the economy. Both are currently used to determine how much borrowing a member state is allowed to undertake. However, neither measure in itself determines a government’s capacity to sustain higher levels of public investment. Fiscal sustainability depends on growth, the multiplier effects of investment, interest rates, inflation, the structure of the economy and external risks such as climate change. NEF advocates moving away from strict numerical debt targets.

Rising climate costs

Heavy storms and rainfall have become more frequent. Last summer’s storms caused the biggest power outage in 30 years, as well as damage to homes and the country’s infrastructure. Agriculture is the sector most exposed to the effects of climate change, with repeated droughts and heatwaves having a significant impact on crop yields. Between 1990 and 2023, there were 11 years in which more than 50% of Hungary’s territory was affected by drought. In 2025, the estimated damage to corn fields alone was at least €600m. During the 2025 heatwave, the unusually low water levels on the Danube affected shipping and agriculture, meaning cargo ships could only operate at 30% – 40% capacity.

What NEF’s modelling shows

Organisation for Economic Co-operation and Development (OECD) projections show Hungary’s GDP declining by 12% by 2050 and 17% by 2070 under current policies. Our modelling shows the following:

Under current policies (BAU – business as usual), Hungary’s debt is 70 pps higher than the climate-agnostic baseline in 2050 and 228 pps higher in 2070.

With early EU mitigation and sufficient adaptation spending, debt is 53 pps higher in 2050 and 88 pps higher in 2070.

Delayed EU investments and insufficient adaptation results in higher debt levels of 64 pps in 2050 and 114 pps in 2070.

EU early action combined with global cooperation results in 6 pps higher debt levels than the climate-agnostic baseline in 2050 and 15 pps lower levels in 2070.

Progressive taxation, such as a wealth tax, combined with EU early action would reduce debt by 20 pps in 2050 and by 52 pps in 2070 compared to the baseline.