Hungary's debt outlook downgraded over governance issues

Hungary is currently facing economic challenges as the U.S. ratings agency Moody's has taken action to downgrade the country's government debt outlook. This decision was made on November 29, 2024, and it reflects growing concerns regarding institutional and governance weaknesses within the Hungarian government. The downgrade comes at a critical time when Hungary heavily relies on substantial funding from the European Union, accounting for roughly 3.4% of the country's economic output annually. The EU funding comes with strict conditions that require adherence to the rule of law, which Hungary's nationalist Prime Minister, Viktor Orban, has been accused of violating through various governmental policies over recent years. Given Hungary's antagonistic relationship with the EU, there is a viable risk that the country may miss out on vital financial support due to non-compliance with set conditions. Moody's has indicated that these issues could lead to diminished trend GDP growth and deteriorating fiscal and debt metrics for Hungary in the future. The note concluded that ongoing negotiations between Hungary and the EU are currently difficult, which heightens concerns regarding the continuation of essential EU funds.