Soaring debt service costs in Hungary

CEE Macro and FI Daily , 6. Nov
Soaring debt service costs in Hungary

Today, we will be examining debt servicing costs in the region. In particular, we will be looking at the interest expenditure on public debt development. For most of the CEE countries, the interest expenditure ranges between 1% and 2% of GDP. However, there is an exception with respect to Hungary. In the aftermath of the inflation shock and the need for the Hungarian central bank to deliver emergency interest rate hikes at the end of 2022, the costs related to the debt service surged in Hungary. Over the last year, interest expenditures have visibly increased from 2% of GDP to as much as 5% of GDP, which is higher when compared to Italy. Such developments limit the fiscal space in Hungary and increase vulnerability of the country.