Roadmap to a crisis-proof Hungarian economy? – Here are the 6 key steps

A Senior Analyst at Raiffeisen revealed to G7 a six-point roadmap to make the Hungarian economy crisis-proof. Key steps include adopting the euro, enforcing fiscal discipline, reforming the tax system, stabilising income policy, diversifying industry, and reducing energy dependence through nuclear and renewables.

Saying goodbye to the forint

As G7 writes, the forint has long been a weak spot in the Hungarian economy, largely because its unpredictability makes it a favourite target for speculators. Big players in the financial markets can easily take advantage of its relatively liquid and lightly regulated nature, often moving the exchange rate in whatever direction suits them. This ongoing risk has kept the idea of adopting the euro firmly on the table. While it’s important to consider the potential downsides of ditching the forint, switching to the euro would remove a major source of economic instability. It’s no surprise then that most Hungarians still support the move to the euro, seeing it as a way to protect the economy from future shocks.

Budget deficits kept low

Hungary has set euro adoption goals before, but a lack of consistent fiscal policy has made it hard to believe. For the Hungarian economy to move forward, maintaining low budget deficits is crucial, yet this often clashes with short-term political interests. Meaningful fiscal discipline has only come under external pressure, and without internal commitment, public finances remain a key risk. A stable macroeconomic policy and credible deficit reduction could cut debt financing costs, easing the burden on the Hungarian economy in the long run.

Fairer tax system

To make the Hungarian economy more resilient, the country needs a fairer, more balanced tax system, according to G7’s analyst. Currently, the tax structure relies too heavily on consumption, meaning revenues drop sharply when spending slows, as seen in 2023. Shifting towards higher income and wealth taxation would help stabilise public finances during economic downturns. A more progressive approach would spread the burden more evenly, ensuring the budget isn’t as vulnerable to economic cycles.