EC raises fiscal risk assessment for Hungary

The EC classified Hungary as a medium risk country from a fiscal sustainability point of view, according to the updated Debt Sustainability Monitor report released yesterday. The risk assessment deteriorated compared to the low-risk assessment from 2015. Short-term fiscal risk was low but the EC raised the risk assessment on debt sustainability and the required structural budget position. It projected government debt to decline only slowly to just 70.3% of GDP at end-2027 compared to an estimated end-2016 level of 73.4%. The slow decline in the debt will be because of insufficient structural primary balance and relatively low GDP growth. Potential GDP growth was estimated at around 1.8-2.0% in the longer term in a no-policy-change scenario. On the other hand, the scenario based on the targets in Hungary’s convergence program will reduce debt to around 57% by end-2027, the report showed.

The EC still assessed a high risk related to the 35.3% share of public debt in forex, despite the significant reduction in this ratio in the past years. The 15.3% share of short-term public debt was also a risk, the report showed. Positively, contingent liabilities related to state guarantees and support for the financial sector were low.

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