Europaudvalget 2024
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EUROPEAN
COMMISSION
Brussels, 19.6.2024
SWD(2024) 617 final
COMMISSION STAFF WORKING DOCUMENT
2024 Country Report – Hungary
Accompanying the document
Recommendation for a COUNCIL RECOMMENDATION
on the economic, social, employment, structural and budgetary policies of Hungary
{COM(2024) 617} - {SWD(2024) 600}
EN
EN
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ECONOMIC AND EMPLOYMENT SNAPSHOT
while tight monetary policy helped reduce
inflation rates from an annual average of 17%
–
the highest in the EU in 2023
–
to below 4%
by early 2024. Core inflation decreased less
and was 6.5% in March 2024. Nominal wage
growth has remained high, driven by the tight
labour market and significant minimum wage
increases. The current account improved from
a deficit of 8.3% of GDP in 2022 to a 0.3%
surplus in 2023 due to falling energy import
prices and lower import demand. The projected
pick-up in economic activity is set to keep
inflation above the central bank’s target of
3%, with a band of ±1%, and lead to modest
current account deficits in 2024-2025.
Hungary
continues
to
experience
vulnerabilities related to external and
government financing needs.
An in-depth
review was undertaken as part of the
macroeconomic imbalance procedure earlier
this year (
2
). It found that while the improving
external environment mitigated some short-
term risks, policy progress has been limited,
with Hungary still vulnerable to both external
and domestic shocks.
The high budget deficit remains a
challenge.
Tax revenues have been eroded by
labour and corporate tax cuts between 2017-
2022, while spending has remained elevated
since the pandemic. Hungary has faced some
of the highest debt servicing costs in the EU,
and interest expenditure rose from 2.2% of
GDP in 2019 to 4.7% in 2023 (
3
). The interest
rate paid on public debt was the highest in the
(
2
) SWD(2024) 103 final.
(
3
) Interest expenditure is set to amount to 6.7% of public
debt in 2024, draining more than 11% of government
revenue, up from some 5% in 2021. Inflation-linked
retail government bonds, which amounted to some 9%
of GDP at the end of 2023, are a major driver of high
interest expenditure in 2023 and 2024, as their coupon
payments depend on the inflation rate of the preceding
year.
The economy is set to recover
after the recession in 2023
After a recession in 2023, the Hungarian
economy is set to grow again (
1
).
Following
buoyant growth in 2022, real GDP decreased
by 0.9% in 2023. It is projected to increase
again by 2.4% in 2024 and by 3.5% in 2025.
Despite the fall in GDP, employment held
steady and the employment rate remained
above the EU average in 2023, which can
support domestic demand in the future.
In recent years, expansionary economic
policies have contributed to the build-up
of vulnerabilities.
Until 2022, household
consumption was supported by tax cuts,
pension increases and price and interest rate
caps that aimed to preserve households’
purchasing power. However, these measures
prevented consumers from adjusting to rising
energy prices and borrowing costs, and led to
the build-up of both large current account and
budget deficits, as well as inflationary
pressures. Subsidised lending schemes
contributed to house price overvaluation but
had little structural effect on productivity
growth, while adding to the long-term fiscal
burden. In addition, frequent credit market
interventions have provided limited support to
economic growth while hindering the smooth
transmission of monetary policy.
An improving external environment and
some policy adjustments helped reduce
inflation and the current account deficit.
The lifting of price caps led to a spike in
inflation from the second half of 2022. This
forced consumers to cut back on spending,
(
1
) The cut-off date for the data used to prepare the 27
Country Reports was 15 May 2024.
2
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EU, and the gap to its peers increased recently
(Graph 1.1). The policy response to the fiscal
pressures stemming from high energy prices,
inflation and the ensuing recession mostly
consisted of public investment cuts together
with temporary windfall profit and sectoral
taxes that were levied mainly on the energy,
financial and retail sectors. The 2023 budget
deficit, at 6.7% of GDP, exceeded the
government’s original target by some 3
percentage points. In the absence of further
measures, the deficit is projected to remain
elevated at 5.4% of GDP in 2024 and 4.5% in
2025, which is expected to stall debt reduction
after a 0.5 percentage point decrease in public
debt in 2023 to 73.5% of GDP. According to
the Commission’s
debt sustainability analysis
based on the 2024 Spring forecast, Hungary
faces medium risks in the medium term and
long term (see Annex 21).
Graph 1.1:
Average interest rate paid on public
debt in Hungary and selected Central and
Eastern European countries (%)
8
7
6
5
(see Annex 19). Consequently, while GDP per
capita was 76.4% of the EU average in 2023,
actual individual consumption, which measures
the material welfare of households, was 68%,
the second lowest in the EU.
Hungary’s relative
position has deteriorated in the last decades
(see Graph 1.2).
Graph 1.2:
Development of actual individual
consumption per capita in Hungary and in
Central and Eastern Europe (average of EU-
27=100%), 2004-2023
100%
90%
80%
70%
60%
50%
40%
4
3
2
(1) Central and Eastern Europe = Bulgaria, Estonia,
Croatia, Latvia, Lithuania, Poland, Romania, Slovakia
(2) Purchasing power parities
Source:
Eurostat
1
0
2017
2016
2018
2019
2020
2021
2022
Hungary
Czechia, Poland and Romania
2023
Structural challenges are holding
back productivity growth
Structural challenges remain for GDP
growth in the longer term.
To foster long-
term economic growth, Hungary would need to
refocus its economic policy on ensuring
macroeconomic
stability
and
boosting
competitiveness by attracting high value-
added investment and providing a more
predictable business environment as well as
high-skilled workers.
The economy specialises in activities
where low production costs are the main
source of competitiveness.
The Hungarian
economy is well integrated into global value
chains. However, companies mostly participate
(1) Unweighted average of non-euro area countries, i.e.
Czechia, Poland and Romania
Source:
Ameco database
The benefits from growth are distributed
unevenly.
Over the past few years, the
compensation of employees has grown slower
than domestic income, while social transfers
as a percentage of GDP have also been low
compared to the EU average (see Annex 14).
The real value of several social and family
benefits has been eroded by high inflation. The
tax and benefit system’s ability to reduce
inequalities is low compared to the EU average
3
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Hungary
CEE
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in assembly activities, which are labour- and
energy-intensive but only account for a limited
share of the final product’s value. Policies
have aimed to reduce production costs for
manufacturing companies by lowering labour
and corporate income taxes, offering tax
allowances and investment subsidies, adopting
lax employment protection legislation, and
loosely enforcing environmental regulations.
Such policies might attract investment in
manufacturing, but this approach has
reinforced Hungary’s specialisation in cost-
sensitive and energy-intensive business
activities. While investment in machinery and
equipment as a share of GDP was among the
highest in the EU in 2023, investment in
intellectual property remains well below the
EU average. The inward foreign direct
investment (FDI) stock has gradually declined
over the last decade and its structure has
changed. This reflects the deteriorating
business environment (see more details in
Section 3 on Further priorities ahead),
government’s efforts to increase domestic
ownership in utilities and services, and the
promotion of investment in assembly
activities.
Graph 1.3:
FDI stock in Hungary by investor, as
% of GDP
90%
80%
70%
60%
50%
and 25% respectively in 2022) (
4
). Reliance on
foreign electricity supply was 25.4% in 2023
and is set to decline to 20% by 2030.
Hungary’s draft updated national energy and
climate plan from 2023 outlined ambitious
plans to further strengthen the internal energy
market
by
improving
energy
interconnectedness. However, more ambitious
targets are needed for energy efficiency,
energy security and renewable energy. The
plan does not specify the investments that
would help achieve the goals. It also lacks
concrete measures on how to reduce
dependence on Russian oil and gas, which was
75% in 2023, apart from highlighting the need
to strengthen domestic natural gas extraction.
The reliance on imported fossil fuels, coupled
with slow progress in energy efficiency and
low renewables penetration, affect Hungary’s
economic competitiveness.
Skilled workers, digitalisation and an
innovation-friendly business environment
are needed for long-term growth.
The
education system could do better in equipping
people with skills and promoting social
mobility. Some 10 000 pupils from each
cohort never enter the labour market or only
become low-skilled workers. This is linked to
low levels of basic skills, as measured in the
OECD’s Programme for International Student
Assessment
(PISA),
especially
among
disadvantaged
students.
The
tertiary
attainment rate is among the lowest in the EU.
People with a disability, Roma and the low-
educated face challenges to participate in
training and find work. At the same time, the
vacancy rate remains high in sectors requiring
skills, such as health and social services, public
administration, financial and ICT services.
Hungary recently streamlined the process of
employing workers from non-EU countries to
address the shortage of workers: the number
of foreign workers in Hungary surged to
around 100 000, around 2.1% of the
employed population, in 2023, mostly due to
the inflow of non-EU nationals (see Annex 14).
While the use of digital technologies by
Hungarian firms increased in 2023, the
(
4
)
https://ec.europa.eu/eurostat/web/interactive-
publications/energy-2024#energy-sources
40%
30%
20%
10%
0%
2014
2015
2016
2017
2018
Asia
2019
2020
2021
US and Germany
Other
(1) Asia = South Korea, China, India and Japan
Source:
Magyar Nemzeti Bank
There is still considerable scope to
improve the energy efficiency and energy
security aspects of Hungary’s climate and
energy policy.
Gas remains a significant part
of both the energy and electricity mix (30.6%
4
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digitalisation of businesses remains a
challenge (see Annex 10). The business
environment remains a barrier to innovation
due to unpredictable regulatory changes, low
government effectiveness, a high perception
of corruption and weak competition in certain
sectors. The administrative burden on
businesses, measured by the Global
Competitiveness Index, is slightly higher than
the EU average. Progress in these areas could
help the Hungarian economy transform from a
low-cost country into one based on innovation.
This could sustain economic growth as
domestic wage and price levels catch up with
the rest of the EU.
Regional disparities remain significant in
Hungary, and the process of internal
convergence remains slow.
GDP per capita
is still around 50% of the EU average in 4 out
of the 8 NUTS 2 regions. These regions and
rural areas in general experience depopulation
and lag behind other regions in terms of
Box 1:
Hungary’s competitiveness in brief
labour productivity, poverty reduction, skills
and air quality. Internal disparities are driven
by limited transport infrastructure and low
R&D expenditure in the less developed regions,
significant disparities in terms of educational
outcomes and a spatial mismatch between
labour supply and demand. These factors are
reinforced by the lack of integrated
programmes to address complex challenges at
the level of functional areas, capacity
constraints of municipalities in the districts
lagging behind and low involvement of local
stakeholders.
Hungary performs at or above the
average in three-quarters of the
European Pillar of Social
Rights
indicators, but further policy action is
needed.
Labour
market
performance
continues to be generally favourable. However,
the disability employment gap remains
substantial, and Roma and low-educated
adults also have significantly lower
Hungary’s competitiveness is supported by high investment and high employment rates
as well as strong integration into EU trade.
However, competitiveness challenges remain:
•
The business environment
is characterised by frequent regulatory changes
and discretionary state intervention. This results in low competition in certain
sectors, affecting the single market and companies from other EU countries.
Social dialogue
is weak, which does not support an effective and stable
regulatory framework. Moreover, the country has the highest number of
incorrectly
transposed single market directives,
which hinders the effective
functioning of product markets.
Weaknesses in
economic and fiscal governance
and more broadly
vulnerabilities related to external and government financing needs
tend
to result in high financing costs for the economy, creating a competitive
disadvantage and increasing the sustainability challenges for public finances.
Shortage of skilled workers,
resulting from below-average performance in
skills and education, including large gaps in basic skills by socio-economic
status, high early school leaving and low tertiary attainment rates, which hinder
productivity.
Research and innovation
spending is low and does not translate
into actual innovation.
The electricity prices for firms
are among the highest in the EU. This
weakens their competitiveness, in part because the share of energy from
renewable sources is one of the lowest (15.2% compared to the EU average of
23% in 2022).
•
•
•
5
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employment rates. The significant increase in
adults’ digital skills suggests a positive outlook
on adult learning and the digital transition, and
this is to be maintained. The low participation
of children under 3 in childcare, a high early
school leaving rate, together with the recent
worsening of poverty indicators, the
diminishing impact of social transfers on
poverty reduction and the high housing cost
overburden rate, point to multiple social issues
and the intergenerational transmission of
poverty. The limited functioning of social
dialogue continues to hinder the broad
involvement of social partners in decision-
making. While Hungary is actively addressing
some of these challenges, further efforts are
needed to increase the adequacy of social
protection and alleviate poverty for the most
disadvantaged, as well as ensure equal access
to quality social, education, employment and
housing services for all.
Box 2:
UN Sustainable Development Goals (SDGs)
Hungary is moving away from the SDG target on industry, innovation and
infrastructure (SDG 9),
having fallen behind on Research and innovation policy indicators such
as patent applications and R&D expenditure. Among other competitiveness and productivity-
related SDGs, the country is converging towards the EU average on some indicators of quality
education, while still lagging behind on tertiary education attainment and adult learning (SDG 4).
Hungary is outperforming other Member States on most employment indicators related to the
goal of decent work and economic growth (SDG 8) but challenges remain in related areas such
as gender equality (see Annex 1).
Out of the 17 indicators, 10 SDGs remain below the EU average.
Besides those
highlighted above, these relate to environmental sustainability (SDGs 2, 7, 9, 12, 13), fairness
(SDGs 3, 4, 5, 7) and macroeconomic stability (SDGs 16 and 17).
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IMPLEMENTATION OF KEY REFORMS AND
INVESTMENTS USING EU INSTRUMENTS
Funding from the Recovery and Resilience
Facility (RRF) and cohesion policy funding
is
key
to
boost
Hungary’s
competitiveness and promote sustainable
growth.
In addition to EUR 10.4 billion of RRF
funding described in Annex 3, cohesion policy
funding for Hungary amounts to EUR 21.7
billion for the 2021-2027 period. Support from
these two instruments combined represents
around 16.38% of the country’s GDP (2023),
compared to the EU average of 5.38% of GDP
(see Annex 4), provided Hungary fully and
effectively implements the remedial measures
to protect the financial interests of the EU
under the general regime of conditionality, the
enabling conditions and the RRF.
Under its recovery and resilience Plan
(RRP), Hungary has launched important
policy measures that are expected to
improve the country’s competitiveness
(
5
).
In particular, the RRP envisages major reforms
in the energy sector and reforms to improve
the sustainability of public spending. Further
RRP measures are ongoing in the fields of
education and skills, health, aggressive tax
planning, energy efficiency and social
cohesion.
The
implementation
of
Hungary’s
recovery
and
resilience
plan
is
significantly delayed due to substantial
challenges.
Hungary has not submitted any
payment requests so far. Structural challenges
linked to the outstanding implementation of
the necessary measures to ensure the
protection of the EU’s financial interests call
for specific actions to ensure that reforms and
investments can be completed on time.
(
5
) The steps taken as part of RRP implementation listed in
this section are to be interpreted as preliminary steps
by Hungary to fulfil the commitments of the RRP. They
do not constitute a final assessment of the satisfactory
fulfilment of such measures by the Commission.
Investments, in particular, are highly
concentrated towards the end of the RRP
implementation and merit special attention.
Cohesion policy funding helps tackle
Hungary’s growth and competitiveness
challenges and reduce the country’s
territorial,
economic
and
social
disparities.
During the 2014-2020 cohesion
policy programming period, support focused on
network infrastructure in transport and energy,
sustainable
and
quality
employment,
education and training, the competitiveness of
small and medium-sized businesses, including
research and innovation, environmental
protection, resource efficiency and the low-
carbon economy and social inclusion. For the
2021-2027 programming period, support aims
to boost competitiveness, innovation and
digital transformation, the green transition,
education and skills, labour market measures
and territorial and social cohesion, while
improving living and working conditions.
Enabling the green and energy
transition
Hungary’s RRP has a strong green
dimension.
Following the adoption of the
revised RRP in December 2023, including a
new REPowerEU chapter, 66.9% of
the RRP’s
allocation is dedicated to climate-related
objectives. This is complemented by funding
under cohesion policy, which supports
Hungary’s climate targets, in particular on
wastewater treatment, disaster risk reduction,
upgrading TEN-T railways network, clean
suburban transport, energy efficiency in
residential housing, the uptake of renewables
in the economy, digitalisation of the electricity
grid and energy management of buildings,
circular waste management and upskilling.
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Through its RRP and REPowerEU chapter,
Hungary has undertaken steps to
authorise the connection of 12 GW of
electricity from renewables.
The plan
includes measures to strengthen the grid,
which have so far led to 1 GW of grid
development
for
the
integration
of
renewables. They will be complemented by
investments and reforms to build a flexible
electricity market with a high share of
renewables and use the grid in a more flexible
way on the supply and demand side (Box 3).
Hungary has started to reduce barriers
that were hindering the development of
wind power and other renewables.
It
adopted legislation to reduce the requirement
for the installation of wind turbines to keep a
minimum distance from residential premises
to 700 meters. Rules for the grid connection of
small photovoltaic plants were simplified, and
feed-in
limitations for households’ solar
panels were lifted in a large part of the
country. The framework for the development
of renewable hydrogen was also reviewed to
incentivise the uptake of green hydrogen in
the industrial sector.
Following the introduction of new energy
efficiency standards, building renovation
schemes backed by EU funds will be
required to achieve at least a 30%
reduction in energy consumption.
Funding
under the RRP for energy efficiency measures
for households, companies and the public
sector amounts to EUR 1.7 billion. There are
strong complementarities with the 2021-2027
cohesion policy programmes, which provide
additional funding of EUR 1.2 billion for energy
efficiency. Measures that target residential
homes are also expected to reduce air
pollution (
6
). While support from EU funds for
energy efficiency measures is significant,
there is potential for further energy efficiency
improvements in residential buildings, also in
light of the fact that the regulated price for
households continues to weaken incentives to
become
energy-efficient
and
reduce
consumption.
(
6
) The relatively inefficient energy production sector
remains another major source of air pollution.
Hungary is kickstarting the roll-out of
financial instruments to improve the
access of households and companies to
finance in the energy efficiency, electric
mobility and geothermal energy sectors.
To this end, the Hungarian national
development bank (MFB) has been mandated
with the implementation of five financial
instruments under the RRP for a total of
almost EUR 1.5 billion. In addition, the MFB will
mobilise at least EUR 550 million in these
sectors under the 2021-2027 cohesion policy
programming period.
To boost sustainable transport, Hungary
is moving towards a single tariff
ticketing and passenger information
system.
As of May 2023, passengers can
travel with one ticket across the country on
routes operated by different services. Cohesion
policy supports the shift to rail transport and
green public transport, including urban and
suburban transport, to the tune of EUR 3
billion.
Under the RRP, Hungary is developing a
national strategy and action plan for
green skills.
The RRP also includes targeted
investments to help train, upskill and reskill
the workforce so they can acquire green skills,
and increase public awareness on energy,
climate mitigation and adaptation, and
environmental issues. These complement the
resources available for reskilling and
employment measures from the Just
Transition Fund.
Supporting fiscal sustainability
with more efficient and fairer
fiscal and tax policies
The RRP includes measures to make fiscal
policies more efficient and fairer.
Hungary
has started preparations to reform the pension
system with the aim to promote medium- and
long-term fiscal sustainability and fairness. It
has also established the institutional
framework for conducting annual spending
reviews. Two reviews conducted in 2023 (on
health and family/housing) and two planned in
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Box 3:
Combined action for more impactful EU funds
To boost economic growth and maximise the impact of EU funding, Hungary’s RRP includes
reforms that support investments under other EU instruments, creating important synergies and
complementarities between the various funds. For example, several reforms in Hungary’s RRP
help build a flexible electricity market with a high share of renewables. These reforms
–
which
include introducing dynamic pricing in the retail electricity market, improving regulatory reserve
markets, strengthening the role of energy communities and aggregators, improving the uptake of
electricity storage and the range of consumers using smart meters
–
aim to reduce the burden
on the grid. The reforms are flanked by investments both in the RRP and under the cohesion
policy to modernise the electricity grid.
2024 (on public investment and education) are
expected to cover at least 20% of government
expenditure.
Hungary is taking action to tackle
aggressive tax planning, improve the
transparency of its tax system and make
it more user-friendly by digitising tax
services.
As of 1 January 2024, there are
new rules in place aiming to prevent royalty
and interest payments from flowing untaxed
to zero- or low-tax jurisdictions. Transfer
pricing regulations have been bolstered by
requiring large companies involved in
transactions between associated entities to
report specific information. Hungary also put in
place an e-platform to fulfil VAT reporting
obligations.
strengthened the role and powers of the
National Judicial Council (led by judges) to
limit arbitrary decisions in the administration
of courts and reformed the functioning of the
Supreme Court to shield it from political
influence. It ended the Constitutional
Court’s
role in reviewing final decisions by judges at
the request of public authorities and removed
obstacles to preliminary references to the
Court of Justice of the European Union.
The RRP includes reforms to improve
competition in public procurement.
To
reduce the high share of calls for tender that
result in a single bid to 15% by 2026, Hungary
reported that it set up a comprehensive
performance measurement framework to
continuously monitor the level of single bids
and assess the underlying reasons. It has also
reported on an action plan to make public
procurement procedures more transparent and
help micro-, small- and medium-sized
companies participate in tenders.
Cohesion policy provides support to
businesses.
Investments amounting to EUR
4.4 billion have been allocated for the
technological development of small and
medium-sized companies, integration of digital
technologies (including cloud, AI and big data)
and advisory services. Further funds
amounting to EUR 1.5 billion have been
allocated to research infrastructure and
equipment, technology and knowledge-
transfer and research projects of businesses,
including equity instruments.
Removing regulatory barriers and
improving the business
environment
The RRP includes several measures to
strengthen
the
anti-corruption
framework.
This includes the establishment
of an Integrity Authority and Anti-Corruption
Task Force, and the adoption of a new national
anti-corruption
strategy,
including
the
possibility of a judicial review of decisions by
the prosecution service or the investigating
authority to dismiss a crime report or
terminate criminal proceedings. Moreover, the
plan includes reforms to improve the quality
and transparency of decision-making and
ensure a more systematic involvement of
stakeholders.
Hungary
strengthened
its
judicial
independence.
Hungary has significantly
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Improving access to quality
education and healthcare, and
social inclusion
Through the RRP and cohesion policy,
Hungary started implementing a reform
to make the teaching profession more
attractive.
At the end of 2023 and at the
beginning of 2024, the Hungarian government
adopted decrees to start a long-term increase
in schoolteachers’ salaries. The aim is to reach
at least 80% of the average graduate salary
by 2025 and maintain this minimum 80%
salary level at least until 2030. Around EUR
1.8 billion of cohesion policy funds have been
allocated to this end.
Hungary
is
implementing
several
measures to ensure equal access to
digital education tools and improve the
digital skills of students and teachers.
In
the RRP, a first batch of digital notebooks were
distributed to pupils and teachers for
education purposes and to schools to help
them set up IT classrooms. A strategy was
adopted to prioritise disadvantaged students
when allocating digital notebooks. Projects
under the cohesion policy plan to interlink
educational databases, improve online
learning and develop the basic digital skills of
at least 300 000 adults by 2029.
Hungary is taking steps to modernise its
vocational education system.
16 vocational
education and training centres will benefit
from energy efficiency renovations, modern
workshops and classrooms, and new digital
equipment, tools and digital learning materials.
Investments supported by the cohesion policy
plan to modernise professional development
programmes for trainers, provide mentoring
and scholarships to disadvantaged pupils, and
establish sectoral knowledge centres providing
quality, dual training on a sectoral basis.
Hungary is increasing the availability of
early childhood education and care places
for children under 3 years of age.
The
construction and extension of crèche places is
underway under the RRP, with 500 new places
to be completed by the end of 2024 and a
further 4 000 by the end of 2025,
supplemented by an additional 1 000 crèche
places financed by cohesion funds.
To improve the quality of health services,
Hungary is taking steps to set out more
transparent ways for patient-carer
relationships
and
ensure
better
management.
New legislation introduced a
new employment contract with higher salaries
for doctors as well as sanctions for gratuity
payments in the healthcare sector. The
government decree on the establishment of
the National Directorate-General for Hospitals
aims to improve the efficiency of the
healthcare management system by creating a
leaner organisational structure. Cohesion
policy will support the further digitalisation of
healthcare and the infrastructure of local
outpatient care and social services.
The RRP and cohesion policy funds will
help address poverty in the most
deprived areas.
In connection with the
‘Catching-up
municipalities’
initiative,
comprehensive social, healthcare, education,
employment and housing services based on
local needs are to be implemented.
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FURTHER PRIORITIES AHEAD
Hungary faces additional challenges
related to economic policy governance, fiscal
policy, debt sustainability, the housing market,
the business environment, skills level and the
integration of disadvantaged groups into the
labour market, social assistance, social
dialogue and reliance on Russian fossil fuels.
Tackling these challenges will help increase
Hungary’s long-term
competitiveness and
ensure its resilience. It will also help make
further progress in achieving the Sustainable
Development Goals (SDGs).
It is important that the challenges
identified are addressed both at national
and regional level
to reduce regional
disparities and improve the administrative and
absorption capacity in a balanced way across
the country.
higher energy prices, weakening their price and
cost competitiveness.
Credit market interventions have become
an important policy instrument, with
questionable
benefits
and
rising
budgetary costs.
Since the end of 2021, the
government has introduced several interest
rate caps to limit the rise in borrowing costs
for the private sector and the government. In
response to rising market interest rates,
subsidised lending schemes have also been
expanded. However, such schemes have not
increased the productivity of loan recipients (
8
),
while creating a long-term fiscal burden.
Borrowing by a public development bank to
finance these schemes has added to public
debt by 1.7% of GDP in 2023. In 2023, the
government spent 0.6% of GDP on interest
subsidies, while the subsidies provided by the
central bank (MNB) on its own lending
schemes added to its losses. Due to recent
changes in the central bank law, the losses
made by the MNB no longer need to be
reimbursed
by
the
national
budget
immediately, only over the long term.
The national fiscal framework has not led
to a more prudent fiscal stance.
Weaknesses in Hungary’s fiscal framework
and budget planning have increased the
expansionary bias of fiscal policy and added to
current macroeconomic challenges (
9
). The
early preparation of the annual budget
between 2016 and 2023 reduced the
reliability of macroeconomic and budgetary
forecasts. The large discretion of the
government in budget implementation allows
(
8
) Telegdy, Á. and G. Tóth (2024), A támogatott hitelezés
hatásvizsgálata Magyarországon, Közgazdasági
Szemle 71:113-130 (in Hungarian).
(
9
) See thematic chapter in the 2023 in-depth review;
SWD(2023) 639 final. Fiscal policy is often called
expansionary or ‘loose’ if it increases
demand in the
economy via higher spending and tax cuts.
Weak economic policy governance
leads to imbalances and high
deficits
Hungary would benefit from a more
coherent economic policy strategy that
delivers fiscal consolidation and macro-
financial
stability,
and
lays
the
foundations for sustainable economic
growth (
7
).
In recent years, economic policies
have been geared towards stimulating short-
term economic growth with the risk of
overheating the economy. This can worsen
external sustainability and keep inflation and
interest rates relatively high. Large minimum
wage hikes have helped support consumption
but would require future productivity gains to
avoid fuelling inflation. The cost of household
energy subsidies has been shifted to
companies in the form of higher taxes and
(
7
) See SWD(2024) 103 final.
11
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for looser policy in good times. It has also
reduced budget transparency and overall
policy predictability. Frequent and significant
revisions of fiscal targets have undermined
the role of the budget as an anchor for market
participants and called into question the
credibility of the medium-term fiscal plans.
Moreover,
Hungary’s debt rule remains
procyclical, as it allows for more spending and
tax reductions when there is higher growth
and inflation.
A realistic and stable medium-term fiscal
framework would help address fiscal
challenges.
Hungary would benefit from
embedding sound medium-term fiscal
planning based on multiannual spending
ceilings, as set out in the revised EU fiscal
rules, in the domestic budgetary framework.
Giving the Hungarian Fiscal Council a more
prominent role and increased operational
capacities could help improve fiscal discipline
and transparency, especially in the current
context of heightened consolidation needs. The
Fiscal Council could contribute to the national
policy debate, for instance by assessing the
government’s budgetary and multiannual
macroeconomic forecasts or performing
regular policy costing and long-term
sustainability analyses.
The Commission’s analysis points to
elevated debt sustainability risks driven
by persistently high deficits (see Annex
21).
According to the 2024 Ageing Report
projections, the long-term sustainability of the
pension system has deteriorated, with total
public pension expenditure expected to
account for 12% of GDP in 2070,
0.6 percentage points (pps) higher than in
previous projections.
Despite recent reforms, housing support
measures may continue to drive up house
prices.
House price increases cooled and
house price overvaluation eased in 2023 due
to higher interest rates and a fall in household
income and confidence. However, data for
early 2024 point to a renewed increase in
mortgage lending. Recent reforms in housing
subsidies have reduced the number of eligible
households, but the amount of support per
beneficiary has increased substantially. These
subsidies could continue to drive up house
prices if supply is not responsive to increased
demand. At the same time, meaningful
measures to increase the housing supply have
been left wanting. The underdeveloped rental
market also reduces housing affordability and
hinders social mobility. Housing support
schemes have also become more geared
towards higher-income households with the
increasing reliance on subsidised loans.
The quality of the business
environment is key for companies
The business environment continued to
deteriorate.
Hungary ranks among the
bottom third of EU countries in the IMD
Competitiveness Ranking (
10
). It performed
particularly badly in the ‘Business efficiency’
category, which measures the extent to which
the
national
environment
encourages
businesses to perform in an innovative
manner. Service trade restrictions are high, as
measured by the OECD in 2024. The Global
Competitiveness Index shows that only a few
firms dominate the market. Regulatory quality
has declined over the last decade, as
measured by the Worldwide Governance
Indicator. According to a survey by the German
Chamber of Commerce, the attractiveness of
Hungary as an investment destination has
decreased (
11
). In 2023, there was no
Hungarian firm among the 50 fastest growing
tech companies in Central and Eastern Europe,
while in 2009 there were more Hungarian
firms on the list than firms from other
countries (
12
). The US terminated its tax treaty
with Hungary as of January 2024. The
absence of such a tax treaty increases the
administrative costs and taxes of Hungarian
firms and natural persons on their incomes
(
10
)
World Competitiveness Ranking
–
IMD business school
for management and leadership courses
(
11
) In 2023, 79% of companies stated they would reinvest
in Hungary, down from 88% in 2022.
(
12
)
nyitrai-tamas-a-versenykepessegi-reformok-
elmaradasaval-a-hazai-technologiai-cegek-
teljesitmenye-is-gyengulo-tendenciat-mutat.pdf
(mnb.hu)
12
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from the US. This change may affect the
presence of foreign direct investment, in
particular by special purpose entities (
13
). In
2024, the number of taxes increased further
from 59 to 61, also because most of the
temporary sectoral taxes set up since the
pandemic have not been phased out by 2024
as expected.
State interventions have an impact on
competition and the functioning of the
single market in Hungary.
In recent years,
the sector-specific taxes levied on certain
sectors and firms have increased. These tend
to be in sectors where foreign ownership is
high (e.g. retail, cement, construction and
ceramic materials), creating a disproportionate
burden on the firms concerned (
14
) and
affecting how the single market works. Firms
complain about unequal treatment and
arbitrariness when authorities conduct
administrative inspections (
15
) or decide on
permits (
16
). The government increasingly
declares certain investment projects to be of
(
13
) The foreign direct investment by special purpose
entities (SPEs) amounted to around 140% of the GDP in
2022. These SPEs are formally registered in Hungary
but have no or very limited physical presence,
employment and production activity in the country.
(
14
) In the cement industry, the 90% mining fee on profit,
the recently introduced 40% tax on freely distributed
emission quotas and 15% tax on quota transfers, even
within company, has made domestic production
uneconomical, thereby supporting imports. The
unexpected and retrospective nature of this tax do not
provide an incentive to more efficient or
environmentally friendly operations. The tax rate in the
highest bracket (turnover above HUF 100 billion) of the
progressive retail tax on net revenue was increased
further from 4.1% to 4.5% in 2024. The tax rate
remained unchanged for lower brackets (0% up to HUF
0.5 billion, 0.15% up to HUF 30 billion, 1% up to HUF
100 billion).
(
15
) Large foreign retail firms received disproportionately
more fines and inspections than Hungarian-owned retail
firms, for example in the context of mandatory
discounts that concern only larger retail chains. By
contrast, the environmental fines and pollution
monitoring standards are low. Firms can contract
authorities to carry out targeted inspections on
competitor firms.
(
16
) The construction of retail establishments above 400 m
2
is prohibited in Hungary, but the authorities can grant
exemptions. The criteria for these exemptions are not
transparent and there is no scope for effective judicial
review.
‘strategic importance
for the national
economy’ to speed up and lighten the
administrative process. Private investors can
also ask for exemptions, but the criteria used
by the government are not transparent and
cannot be challenged in court. In 2023, for
instance, the government obtained a right of
first refusal on solar power plants in Hungary.
This can hinder the green transition and
decrease the value of these businesses, as it is
less likely that potential buyers will invest
money in a transaction if the state has a buy
option. At the same time, the government
continues to use its power to exempt
transactions from merger control. The criteria
for these exemptions are not transparent, and
no formal procedure exists to contest them.
There have been more than 40 such
interventions since 2014. The government also
continues to make extensive use of its
mandate to issue emergency decrees under
the ‘state of danger’ regime. Many of these
decrees do not seem to relate to the invoked
emergency situation, which weakens legal
certainty and interferes with normal business
activity.
The changing market and ownership
structure create less competition and
fewer incentives to invest and innovate.
The general perception of businesses is that
various state interventions are used to force
foreign owners to sell their firms, facilitating
the creation of public or government-
connected
national
champions.
These
interventions may also restrict companies with
ownership from other EU countries from doing
business under equal opportunities. The
transactions are often concluded through
private equity funds and their beneficial
owners do not seem to be easily identifiable
with certainty. This adds to the unpredictability
of the business environment and creates a
challenge for the market supervisory
authorities. Several services (
17
) are entrusted
to state-owned or private firms specifically
created for these purposes, which operate
without competition.
(
17
) Textbook publishing, fertility clinics, waste
management, mobile payments, the cash-in-transit
market, tobacco wholesale and retail and gambling.
13
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The deteriorating enforcement of single
market rules acts as a drag on
investment.
According to the Single Market
Scoreboard, there are significant delays in
transposing directives related to the single
market and complying with rulings of the
European Court of Justice, and a significant
proportion of directives are transposed
incorrectly. The recent
law on ‘protecting
national sovereignty’ also raises legal
questions (
18
). Better compliance with single
market rules would support market
integration, generate more investment and
ultimately lead to greater productivity,
competitiveness and welfare gains.
Graph 3.1:
Cost of one patent in EUR million, in
purchasing power standards, 2022
RO
HR
HU
CZ
SK
PL
BG
GR
LV
PT
LT
SI
EE
ES
BE
IT
CY
AT
EU
FR
DE
IE
DK
SE
FI
NL
MT
LU
Moreover, R&D spending is not translated into
actual innovation. The number of patent
applications compared to the money spent on
them is one of the lowest in the EU (Graph
3.1). This points to the low effectiveness of
this tax allowance and R&D spending (see
Annex 11).
Shortage of skilled workers acts
as an obstacle to growth
The shortage of skilled workers hinders
the competitiveness potential of the
economy.
Basic skills as per the latest PISA
test results are around the EU average, but the
performance gap by socio-economic status is
larger than in other EU countries. More than
half of 15-year-old Hungarians from the
bottom quarter of the socio-economic
distribution underachieve in mathematics, a
share that increased by 6.7 pps between 2018
and 2022. The early school leaving rate is
above the EU average, and it is significantly
higher in rural areas and among
disadvantaged groups, especially among Roma
and persons with a disability. The share of
tertiary graduates is also one of the lowest in
the EU, which poses challenges in meeting the
growing demand for a highly skilled workforce.
Due to the selectiveness of the education
system, disadvantaged students have little
chance to go to university. Concerns related to
academic freedom, obstacles to international
scientific cooperations and low salaries in
universities decrease the attractiveness of
higher education. Improving skills and
education levels would help shift the
Hungarian economy to a high value-added
growth model.
Disadvantaged groups have difficulties
entering the labour market.
Between 2014
and 2022, significant amounts were allocated
to implementing active labour market
measures from EU cohesion funds. While the
employment rate of the low-skilled and Roma
increased significantly over this period, it
remains much lower than the average (60%
and 46% respectively in 2022). The disability
employment gap is well above the EU average.
Similarly, while the overall rate of young
0
20
40
60
Source:
Eurostat
Low
spending
on
R&D
hampers
competitiveness.
Overall R&D spending
decreased to 1.4% of GDP in 2022 (EU
average 2.2%), from more than 1.6% in 2021.
Hungary is a ‘moderate innovator’, and the gap
between its performance and the EU average
is widening. Businesses and academia are
more likely to invest in research if the
business environment is stable. While the R&D
activity of businesses is supported by the state
through a generous tax allowance, a large part
of it is performed by a few large companies.
(
18
)
February infringement package: key decisions
(europa.eu)
14
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people neither in employment nor in education
or training (10.8%) remains below the EU
average, it is significantly higher among
persons with disabilities, Roma and women in
rural areas. There is a substantial territorial
difference in the employment rate (see Annex
14). Targeted measures to integrate these
groups could improve their socio-economic
conditions and ease labour and skills
shortages. For a more productive and more
mobile workforce, effective and widely
available adult education would be key.
Extending the duration of the unemployment
benefit from its current short period of 3
months could also provide more opportunities
for people to find better matching jobs or find
time for upskilling- and reskilling. This would
improve productivity and competitiveness.
Foreign workers help ease labour
shortages.
There has been a significant
increase in the number of foreign workers in
recent years, but this may not match fully the
needs. The legislation on the employment of
foreign workers sets out limits on their number
and the sectors in which they can be hired.
Graph 3.2:
Number of foreign workers in
Hungary (thousands)
100
90
80
70
wages have fallen due to high inflation,
effective labour representation could have led
to a less significant loss for wage earners.
Despite some improvement, social dialogue
remains weak and fragmented in the absence
of a legal framework for a tripartite forum
made up of the government, trade unions and
employers’ associations. The collective
bargaining coverage as measured by the OECD
is low. Measures such as the change in the
membership fees payable to trade unions for
public sector workers, limiting the right of
teachers to strike or the abolishment of
collective bargaining in the health sector have
put employees in a weak position, including in
wage negotiations.
The positive trend of decreasing poverty
has stalled.
In the past decade, poverty
indicators have improved markedly in line with
robust economic growth. However, the relative
situation of certain groups such as low-income
households, children, Roma and people living
in remote settlements has worsened. In 2023,
national poverty indicators increased again
amid the economic recession. The share of
people at risk of poverty and social exclusion
was especially high among disadvantaged
groups such as the low-educated (45.3%) and
Roma (61.7%; against 18.6% of non-Roma in
2023). It increased significantly among
children to 24.4% in 2023, driven by a strong
increase in their severe material and social
deprivation rate.
Some social benefits fail to adequately
support their target groups.
The poverty-
reducing impact of social transfers is
comparable to other EU Member States.
However, some social benefits, such as
minimum income (‘fht’), family benefit
(‘családi pótlék’) and family tax benefit
(‘családi adókedvezmény’), have remained
nominally unchanged despite the rapid
nominal wage growth in recent years. The
effective tax reduction impact of the family
tax benefit has decreased, in particular for
low-income families with more children (see
Graph 3.3). In a high-inflation environment,
this has resulted in a rising proportion of
people at risk of poverty in families compared
to those living in single households. The family
tax benefit helps well-earning families with
several children more than it does for example
60
50
40
30
20
10
0
2019
2020
2021
2022
2023
EU and EFTA
Third countries
Source:
KSH
Limited social dialogue puts employees in
a disadvantaged position in wage
bargaining, especially in the public sector.
In times of creeping labour shortages, even
during the recession in 2023, the
unemployment rate remained below the EU
average (4.1% vs 5.9% in 2023). While real
15
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households with one child and with a lower
income (
19
). The tax system has a low ability to
correct income inequalities. The personal
income tax is flat, the total tax burden on low
earners is relatively high (
20
), and the high
reliance on VAT disproportionately burdens
low-income groups. The scarcity of public
formal care services and assistance implies
that families play a role in financing and
providing long-term care.
Graph 3.3:
Increase in effective tax burden of
employees due to the non-indexation of
family tax benefit, 2019-2023 (percentage
point)
12%
10%
8%
6%
4%
positive developments recorded, especially in
the areas of employment and skills (
21
).
The green transition remains a
significant challenge
The appropriate supply of clean,
affordable and secure energy is crucial
for the competitiveness of the Hungarian
economy.
Hungary has added a substantial
REPowerEU chapter to its recovery and
resilience plan, but significant challenges
remain. It continues to rely heavily on Russia
for fossil fuels and on nuclear energy, and its
efforts to shift away from Russian dependence
are slow. The share of Russian crude oil and
gas in imports amounted to 64% and 75% in
2021 and 2023 respectively. This is
particularly concerning as two thirds of
Hungary’s energy consumption is covered by
oil and gas, and Hungary has one of the
highest figures in the EU for fossil fuel
subsidies as a share of GDP on account of
subsidised energy prices for households. The
electricity and gas price for non-household
consumers is one of the highest in the EU,
hindering the competitiveness of Hungarian
firms. The four-year postponement to 2029 of
the phase-out of the Mátra lignite-fuelled
power plant, which accounts for 50% of the
power sector’s greenhouse gas emissions,
slows the green transition. The deployment of
renewable energy and its speedy connection to
the grid, particularly wind, will be key as
decarbonisation measures and an expansion
of
electricity-based
manufacturing
(in
particular batteries) are expected to drive up
the demand for electricity.
Hungary also continues to face a number
of challenges related to the sustainable
use of water.
There are significant
environmental and climate risks, including
erosion, flood and drought. Measures that
expand irrigation without taking into
(
21
) European Commission,
SWD(2024)132.
The analysis
relies on all the available quantitative and qualitative
evidence and analysing the policy response undertaken
and planned.
2%
0%
2 earners at
average wage
2 earners at
2 earners at
75% of
50% of
average wage average wage
2 children
3 children
1 child
(1) Personal income tax and social security contribution
Source:
KSH
These findings are consistent with the
second-stage analysis in line with the
features of the Social Convergence
Framework.
The analysis points to challenges
mainly related to vulnerable groups’ education,
skills and labour market participation as well
as to the adequacy of social protection but
does not point to major social convergence
challenges for Hungary overall, in light of the
(
19
) Bornukova, K., Hernandez Martin, A. and Picos, F.,
Investing in Children: The Impact of EU Tax and Benefit
Systems on Child Poverty and Inequality,
European
Commission, 2024, JRC137125.
( )
According to the Commission’s Tax and Benefits
database, the tax wedge
–
at 50% of the average
wage (single earners)
–
is one of the highest in the EU.
20
16
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Box 4
The mid-term review of cohesion policy funds for Hungary
The mid-term review of cohesion policy funds is an opportunity to assess
cohesion policy programmes and tackle emerging needs and challenges in EU
Member States and their regions.
Member States review each programme, taking
into account among other things the challenges identified in the European Semester,
including in the 2024 country-specific recommendations. This review forms the basis for
a proposal by the Member State for the definitive allocation of 15% of EU funding
included in each programme.
Hungary has made progress in the implementation of cohesion policy programmes and
the European Pillar of Social Rights, but challenges remain as outlined in this report,
including Annexes 14 and 17. In particular, significant social and regional disparities
persist between the least and most developed districts and between urban and non-
urban areas. Against this background, it remains important to continue implementing
planned priorities, with particular attention to: (i) the digital and green transition,
including the development of basic digital skills, the digital transformation of
businesses, take-up of smart city solutions, net-zero technologies and water
management; (ii) integrated territorial development in functional areas and the least
developed districts, and strengthening the administrative capacity at national and sub-
national levels; (iii) social inclusion and poverty reduction, focusing on children and the
most deprived districts; (iv) comprehensive strengthening of basic skills, and improving
access to quality mainstream education and lifelong learning, complemented by
structural reforms of the education system; (v) targeted measures addressing labour
market challenges for disadvantaged groups such as Roma and building the capacity of
social partners; (vi) the implementation of Territorial Just Transition Plans. In addition,
resolving pending issues on enabling conditions and the conditionality procedure is
necessary for Hungary to make full use of cohesion policy funds.
The following needs merit specific consideration in preparation for the mid-term review:
addressing energy poverty and intergenerational poverty through integrated
interventions, with a focus on the least developed districts and municipalities and their
schools, and strengthened governance and differentiation of the smart specialisation
strategy. Hungary could also benefit from the opportunities under the Strategic
Technologies for Europe Platform (
22
) initiative to boost investments in deep and digital
technologies (e.g. Internet of Things, big data, artificial intelligence), clean technologies
(e.g. renewable energy, geothermal energy) and biotechnologies (pharmaceuticals,
medical products), while also investing in skills and qualifications required to meet the
demand for labour in these sectors.
consideration sustainability aspects harm
water quantity, quality, and biodiversity. The
increased use of water for industry (for
example, growing battery production) is
expected to be a further stressor for water
quality and create challenges in terms of
availability. Distortive sectoral taxes on water
pipelines and the low price of drinking water
have prevented water utility companies from
investing in infrastructure maintenance. The
State Audit Office estimates that about 25%
of all drinking water was lost to leakage in
2021. Both the legal and administrative
environment make the implementation of a
comprehensive water strategy difficult. The
responsibilities related to water management
are scattered across various ministries and
authorities (see Annexes 6 and 9).
(
22
) Regulation (EU) 2024/795
17
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KEY FINDINGS
With its wide policy scope and substantial
financial envelope, Hungary’s recovery
and resilience plan (RRP) includes
measures to address a series of
structural challenges, in synergy with
other EU funds, including cohesion policy
funds by:
•
Strengthening the green transition,
building a flexible electricity sector with a
high share of renewable energy, improving
energy efficiency in residential homes,
public buildings and companies, electrifying
transport, encouraging the production of
renewables,
incentivising
the
decarbonisation of industry, rolling out
financial instruments for energy, improving
waste management and supporting the
acquisition of green skills;
•
Boosting investment in digitalisation
and green and digital skills
by
increasing the use of digital equipment in
education, digital skills training, the
digitalisation of public administration,
healthcare, transport and energy sectors,
and through support for research and
innovation;
•
Removing regulatory barriers and
improving the business environment
by
increasing competition and transparency in
public procurement, strengthening judicial
independence,
reinforcing
the
anti-
corruption framework, and ensuring better
quality of the decision-making process;
•
Improving fiscal sustainability and the
tax system
by reforming the pension
system, conducting regular spending
reviews to identify options for savings and
efficiency gains, and simplifying the tax
system, while strengthening it against the
risk of aggressive tax planning;
•
Supporting access to quality education
and healthcare, the labour market and
social services
by making the teaching
profession more attractive and promoting
greater participation of disadvantaged
groups in quality education, modernising
hospital and primary care, providing
tailored support for those living in the most
disadvantaged settlements, and increasing
the number of crèche places.
The
implementation
of
Hungary’s
recovery and resilience plan is facing
significant
delays
and
substantial
challenges
which require decisive actions to
ensure a successful implementation of all the
measures in the plan by August 2026.
Beyond the reforms and investments in
the RRP and cohesion programmes,
Hungary would benefit from:
•
Pursuing effective policy coordination
and improving economic policy to
ensure
fiscal
and
external
sustainability,
including by strengthening
the medium-term budgetary framework
and annual budgeting, avoiding the
expansionary bias of fiscal policy and
distortive interventions on the credit and
product markets, and targeting support
measures in the housing sector towards
low-income households;
•
Improving the quality of the business
environment
by ensuring a predictable
regulatory framework, a level playing field
for all companies, the consistent
application of single market rules and a
higher level of competition in certain
sectors, including by avoiding arbitrary
administrative interventions and the use of
distortive sectoral taxes and legislation,
applying
competition
scrutiny
systematically to business transactions as
18
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well as reducing the use of emergency
measures to what is strictly necessary;
•
Accelerating the green transition
further
by decreasing dependence on
Russian fossil fuels, investing in sustainable
water management and by taking concrete
steps to phase out fossil fuel subsidies.
•
Improving skills levels, labour market
participation and social mobility,
with a
focus on disadvantaged groups, including
Roma and people with a disability, by
raising education performance, decreasing
the rate of early leavers and upskilling the
workforce;
•
To support upward social convergence,
providing adequate unemployment
benefits
and
effective
social
assistance
as well as a fairer tax system
and equal access to essential services,
including decent housing for all;
•
Ensuring effective social dialogue
by
strengthening its framework and improving
the involvement of social partners in
decision-making.
19
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ANNEXES
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2883992_0024.png
LIST OF ANNEXES
Cross-cutting indicators
A1.
A2.
A3.
A4.
A5.
Sustainable Development Goals
Progress in the implementation of country-specific recommendations
Recovery and resilience plan
–
implementation
Other EU instruments for recovery and growth
Resilience
25
25
27
31
33
36
Environmental sustainability
A6.
A7.
A8.
European Green Deal
Energy transition and competitiveness
Fair transition to climate neutrality
38
38
43
49
Productivity
A9.
Resource productivity, efficiency and circularity
52
52
54
57
60
65
A10. Digital transformation
A11. Innovation
A12. Industry and single market
A13. Public administration
Fairness
A14. Employment, skills and social policy challenges in light of the European Pillar of Social Rights
A15. Education and training
A16. Health and health systems
A17. Economic and social performance at regional level
67
67
70
72
74
Macroeconomic stability
A18. Key financial sector developments
A19. Taxation
A20. Table with economic and financial indicators
A21. Debt sustainability analysis
79
79
81
83
84
LIST OF TABLES
A2.1.
A3.1.
Summary table on 2019-2023 CSRs
Key facts of the Hungarian RRP
28
31
23
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A3.2.
A4.1.
A5.1.
A6.1.
A7.1.
A8.1.
A9.1.
A10.1.
A11.1.
A12.1.
A13.1.
A14.1.
A14.2.
A15.1.
A16.1.
A17.1.
A18.1.
A19.1.
A20.1.
A21.1.
A21.2.
Measures in Hungary's RRP
Support from EU instruments in Hungary
Resilience indices across dimensions for Hungary and the EU-27
Indicators tracking progress on the European Green Deal from a macroeconomic perspective
Key Energy Indicators
Key indicators for a fair transition in Hungary
Circularity indicators
Key Digital Decade targets monitored by the Digital Economy and Society Index indicators
Key innovation indicators
Industry and the Single Market
Public administration indicators
Social Scoreboard for Hungary
Situation of Hungary on 2030 employment, skills and poverty reduction targets
EU-level targets and other contextual indicators under the European Education Area strategic framework
Key health indicators
Selected indicators at regional level in Hungary
Financial Soundness Indicators
Taxation indicators (to be updated once new data are available)
Key economic and financial indicators
Debt sustainability analysis - Hungary
Heat map of fiscal sustainability risks - Hungary
32
35
36
42
48
50
53
55
59
64
66
67
69
71
73
75
80
81
83
86
86
LIST OF GRAPHS
A1.1.
A2.1.
A3.1.
A3.2.
A4.1.
A4.2.
A6.1.
A6.2.
A6.3.
A7.1.
A7.2.
A7.3.
A8.1.
A8.2.
A9.1.
A9.2.
A11.1.
A12.1.
A12.2.
A13.1.
A13.2.
A15.1.
A16.1.
A16.2.
A17.1.
A19.1.
A19.2.
Progress towards the SDGs in Hungary
Hungary’s progress on the 2019-2023
CSRs (2024 European Semester)
Total grants disbursed under the RRF
Total loans disbursed under the RRF
Distribution of cohesion policy funding across policy objectives in Hungary
Distribution of RRF funding by pillar in Hungary
Greenhouse gas emissions from the effort sharing sectors in Mt CO2eq, 2005-2022
Changes in livestock density and organic farming
Environmental investment gap, annual average
Hungary’s energy retail prices for households and industry & service
Trends in electricity prices for non-household consumers (EU and foreign partners)
Hungary's installed renewable capacity (left) and electricity generation mix (right)
Fair transition challenges in Hungary
Job vacancy rate in transforming sectors and mining and quarrying
ETS emissions by sector since 2013
Treatment of municipal waste
R&D intensity in 2022
Total factor productivity
Labour productivity by sector (GDP per person employed, 2015=100
Share of women and men in management positions
Scope index of independent fiscal institutions
Underachievement rates in mathematics by socio-economic background, PISA 2022
Life expectancy at birth, years
Projected increase in public expenditure on healthcare over 2024-2070
GDP per capita (2012) and GDP per capita growth (2013-2022)
Tax wedge for single and second earners, % of total labour costs, 2023
Stocks of assets and liabilities held through special purpose entities (SPEs) as a % of the respective total asset and liability
stocks of foreign direct investment (FDI) in 2022
25
27
32
32
34
34
38
40
41
43
43
45
49
50
52
53
57
60
60
65
65
70
72
72
74
82
82
LIST OF MAPS
A17.1.
Regional Competitiveness Index, 2022, Hungary
76
24
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CROSS-CUTTING INDICATORS
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS
This Annex assesses Hungary’s progress on
the Sustainable Development Goals (SDGs)
along the four dimensions of competitive
sustainability.
The 17 SDGs and their related
indicators provide a policy framework under the
UN’s 2030 Agenda for Sustainable Development.
The aim is to end all forms of poverty, fight
inequalities and tackle climate change and the
environmental crisis, while ensuring that no one is
left behind. The EU and its Member States are
committed to this historic global framework
agreement and to playing an active role in
maximising progress on the SDGs. The graph
below is based on the EU SDG indicator set
developed to monitor progress on the SDGs in an
EU context.
While Hungary performs well (SDG 11) or is
improving (SDGs 2, 7 and 13) on some SDGs
related to
environmental sustainability,
it is
moving away from others and needs to catch
up with the EU average (SDGs 9 and 12).
On
SDG 12 (Responsible consumption and production),
Graph A1.1:
Progress towards the SDGs in Hungary
Hungary is moving away from the EU average.
There is room for improvement on the circular
economy, where the circular material use rate is
low and stagnating (HU: 7.9%, EU: 11.5%; see also
Annex 9). Other contributing factors are the small
environmental goods and services sector,
passenger car emissions (decreasing more slowly
than the EU average) and low energy productivity
that is rising more slowly than the EU average. On
a positive note, Hungary’s net greenhouse gas
emissions (SDG 13; 5.6 tonnes per capita) continue
to be below the EU average (7.3 tonnes per
capita). At the same time, Hungary almost halved
its contribution to the international commitment to
climate-related expenditure between 2017 and
2022, while there was a moderate increase in the
EU average. The recovery and resilience plan (RRP)
includes measures to facilitate the development of
renewable energy and improve the sustainability
of transport, water management and the circular
economy.
On
fairness,
Hungary performs well on
For detailed datasets on the various SDGs, see the annual Eurostat report ‘Sustainable
development in the European Union’;
for
details on extensive country-specific data on the short-term progress of Member States:
Key findings
–
Sustainable development
indicators - Eurostat (europa.eu).
A high status does not mean that a country is close to reaching a specific SDG, but signals that it
is doing better than the EU on average. The progress score is an absolute measure based on the indicator trends over the past 5
years. The calculation does not take into account any target values as most EU policy targets are only valid for the aggregate EU
level. Depending on data availability for each goal, not all 17 SDGs are shown for each country.
Source:
Eurostat, latest update of 25 April 2024. Data refer mainly to the period 2017-2022 or 2018-2023. Data on SDGs may
vary across the report and its annexes due to different cut-off dates.
25
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SDGs 1and 10 (poverty and reduced
inequalities). However, it is moving away
from the targets for SDG 5 (Gender equality)
and needs to catch up with the EU average
on several SDGs (SDGs 3, 4, 5, 7 and 8).
Hungary outperformed the EU average on
multidimensional poverty indicators (SDG 1): it
recorded significant progress on indicators linked
to people at risk of poverty or social exclusion
(which fell from 25.9% of the population in 2017
to 18.4% in 2022) and the severe material and
social deprivation rate (which fell from 16.1% of
the population in 2017 to 9.1% in 2022). On
SDG 3 (Good health and well-being), Hungary
needs to catch up, primarily by reducing the
obesity rate and avoidable mortality. Hungary is
making progress on quality education (SDG 4) but
still needs to catch up with the EU average on
tertiary education attainment and adult learning.
While the unadjusted gender pay gap (SDG 5)
decreased, on average, to 12.7% of men’s average
gross hourly earnings in the EU as a whole, it
widened by 1.6 percentage points to 17.5% in
Hungary in the 5 years preceding 2022. Moreover,
Hungary continues to lag far behind the EU
average on indicators related to women in
leadership positions (senior management positions
and seats in the national parliament). The RRP
supports social development in disadvantaged
settlements and aims to improve higher and
vocational education and modernise the health
sector.
Hungary is improving on SDGs 4 (Quality
education) and 8 (Decent work and economic
growth) in relation to
competitiveness and
productivity.
By contrast, it is moving away
from the targets for the SDG on industry,
innovation and infrastructure (SDG 9).
The
country is achieving mixed results on industry,
innovation and infrastructure (SDG 9), performing
well on sustainable infrastructure but being
outperformed on R&I indicators, in particular on
patent applications to the European Patent Office
(11 per million inhabitants in 2023; EU average:
153) and expenditure on R&D (1.39% of GDP in
2022; EU average: 2.24%). Its investment share of
GDP (SDG 8; 27.9% in 2022) continues to be
above the EU average (22.7%). With the exception
of the gender gap, Hungary outperforms the EU
average on all employment indicators (SDG 8) but
on decent work indicators, it could do better on
fatal accidents at work (2.01 out of every 100 000
workers in 2021). The RRP includes measures
supporting the development of research and
development
cooperation
and
boosting
digitalisation in education, public administration,
and the health, transport and energy sectors.
Hungary continues to improve but still needs
to catch up with the EU average on all SDGs
related to
macroeconomic stability
(SDGs 8,
16, 17).
To catch up with the rest of the EU on
SDG 16 (Peace, justice and strong institutions),
Hungary has room for considerable improvement
on general government total expenditure on law
courts, as well as on the worsening perceived
independence of the justice system and Corruption
Perceptions Index. On SDG 17 (Partnerships for the
goals), Hungary continues to be below the EU
average for global partnership indicators. The RRP
includes reforms to improve public finances,
measures in areas related to the rule of law and
the anti-corruption framework, and reforms to
strengthen judicial independence.
As the SDGs form an overarching framework, any
links to relevant SDGs are either explained or
depicted with icons in the other annexes.
26
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ANNEX 2: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC
RECOMMENDATIONS
The Commission has assessed the 2019-2023
country-specific recommendations (CSRs) (
23
)
addressed to Hungary as part of the
European Semester.
These recommendations
concern a wide range of policy areas that are
related to 14 of the 17 Sustainable Development
Goals (SDGs) (see Annexes 1 and 3). The
assessment considers the policy action taken by
Hungary to date (
24
) and the commitments in its
recovery and resilience plan (RRP) (
25
). At this stage
of RRP implementation, 22% of the CSRs focusing
on structural issues from 2019-2023 have
recorded at least ‘some progress’, while 78%
recorded ‘limited progress’ or ‘no progress’ (see
Graph A2.1). As the RRP is implemented further,
considerable progress in addressing structural
CSRs is expected in the coming years.
Graph A2.1:
Hungary’s progress on the 2019-2023
CSRs (2024 European Semester)
Substantial progress
4%
Some progress
18%
No
progress
13%
Limited progress
65%
Source:
European Commission.
(
23
)
2023 CSRs:
EUR-Lex - 32023H0901(17) - EN - EUR-Lex
(europa.eu)
2022 CSRs:
EUR-Lex - 32022H0901(17) - EN - EUR-Lex
(europa.eu)
2021 CSRs:
EUR-Lex - 32021H0729(17) - EN - EUR-Lex
(europa.eu)
2020 CSRs:
EUR-Lex - 32020H0826(17) - EN - EUR-Lex
(europa.eu)
2019 CSRs:
EUR-Lex - 32019H0905(17) - EN - EUR-Lex
(europa.eu)
(
24
) Including policy action reported in Recovery and Resilience
Facility (RRF) reporting (published twice a year, reporting on
progress in implementing milestones and targets on the
basis of the payment requests assessment).
(
25
) Member States were asked to effectively address in their
RRPs all or a significant subset of the relevant country-
specific recommendations issued by the Council. The CSR
assessment presented here considers the degree of
implementation of the measures included in the RRP and of
those carried out outside of the RRP at the time of
assessment. Measures laid down in the Annex of the
adopted Council Implementing Decision on approving the
assessment of the RRP, which have not yet been adopted or
implemented but considered credibly announced, in line with
the CSR assessment methodology, warrant
‘limited progress’.
Once implemented, these measures can lead to
‘some/substantial progress or full implementation’,
depending on their relevance.
27
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Table A2.1:
Summary table on 2019-2023 CSRs
Hungary
2019 CSR 1
Ensure compliance with the Council Recommendation of 14 June 2019 with a view to correcting the
significant deviation from the adjustment path towards the medium-term budgetary objective.
2019 CSR 2
Continue the labour market integration of the most vulnerable groups, in particular through upskilling,
and
improve the adequacy of social assistance and unemployment benefits.
Improve education outcomes and increase the participation of disadvantaged groups, in particular
Roma in quality mainstream education.
Improve health outcomes by supporting preventive health measures and strengthening primary
healthcare.
2019 CSR 3
Focus investment-related economic policy on research and innovation,
low-carbon energy,
transport infrastructure, and
waste management and
energy and resource efficiency, taking into account regional disparities.
Improve competition in public procurement.
2019 CSR 4
Reinforce the anti-corruption framework, including by improving prosecutorial efforts and access to
public information, and
strengthen judicial independence.
Improve the quality and transparency of the decision-making process through effective social dialogue
and engagement with other stakeholders and through regular, appropriate impact assessments.
Continue simplifying the tax system, while strengthening it against the risk of aggressive tax planning.
Improve competition and regulatory predictability in the services sector.
2020 CSR 1
Take all necessary measures, in line with the general escape clause of the Stability and Growth Pact,
to effectively address the COVID-19 pandemic, sustain the economy and support the ensuing recovery.
When economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal
positions and ensuring debt sustainability, while enhancing investment.
Address shortages of health workers and ensure an adequate supply of critical medical products and
infrastructure to increase the resilience of the health system.
Improve access to quality preventive and primary care services.
2020 CSR 2
Protect employment through enhanced short-time working arrangements and effective active labour-
market policies and extend the duration of unemployment benefits.
Improve the adequacy of social assistance and ensure access to essential services and
quality education for all.
2020 CSR 3
Ensure liquidity support to SMEs.
Front-load mature public investment projects and
promote private investment to foster the economic recovery.
Focus investment on the green and digital transition, in particular clean and efficient production and use
of energy,
sustainable transport,
water and waste management,
research and innovation, and
digital infrastructure for schools.
Assessment in May 2024*
RRP coverage of CSRs until 2026**
Relevant SDGs
Not relevant anymore
Limited progress
Limited progress
No progress
Limited Progress
Limited progress
Limited progress
Limited progress
Some progress
Some progress
Limited Progress
Limited progress
Limited progress
Limited Progress
Limited Progress
Some Progress
Limited Progress
Limited progress
No progress
Limited progress
Not relevant anymore
Not applicable
Relevant RRP measures planned as
of 2023, 2024, and 2026.
Relevant RRP measures planned as
of 2022, 2023, 2024 and 2025.
Relevant RRP measures planned as
of 2021, 2023, 2024 and 2026.
Relevant RRP measures planned as
of 2023 and 2026.
Relevant RRP measures planned as
of 2021, 2022, 2023, 2024 and 2025.
Relevant RRP measures planned as
of 2023, 2024 and 2026.
Relevant RRP measures planned as
of 2023 and 2026.
Relevant RRP measures planned as
of 2023, 2024 and 2026.
Relevant RRP measures planned as
of 2022 and 2023.
Relevant RRP measures planned as
of 2022 and 2023.
Relevant RRP measures planned as
of 2023.
Relevant RRP measures planned as
of 2022.
Relevant RRP measures planned as
of 2023, 2024 and 2025.
SDG 8, 16
SDG 4, 8, 10
SDG 1, 2, 10
SDG 4, 8, 10
SDG 3, 16
SDG 9, 10, 11
SDG 7, 9, 10, 11, 13
SDG 10, 11
SDG 6, 10, 11, 12, 15
SDG 6, 7, 10, 11, 12, 15
SDG 9
SDG 16
SDG 16
SDG 8, 16
SDG 8, 10, 12, 16
SDG 9, 16
Not applicable
Relevant RRP measures planned as
of 2021, 2023, 2024 and 2026.
Relevant RRP measures planned as
of 2021, 2023, 2024 and 2026.
Relevant RRP measures planned as
of 2023, 2024, and 2026.
Relevant RRP measures planned as
of 2023, 2024, and 2026.
Relevant RRP measures planned as
of 2022, 2023, 2024 and 2025.
SDG 8, 16
Some Progress
Limited progress
Limited progress
Limited progress
Limited Progress
Limited Progress
Some progress
Substantial progress
Some progress
Substantial progress
Limited Progress
Some progress
Limited Progress
Limited progress
Some Progress
SDG 3
SDG 3
SDG 1, 2, 8, 10
SDG 1, 2, 10
SDG 4
SDG 8, 9
SDG 8, 16
SDG 8, 9
Relevant RRP measures planned as
of 2021, 2022, 2023, 2024 and 2025.
Relevant RRP measures planned as
of 2023, 2024 and 2026.
Relevant RRP measures planned as
of 2023, 2024 and 2026.
Relevant RRP measures planned as
of 2023 and 2026.
Relevant RRP measures planned as
of 2022 and 2024.
SDG 7, 9, 13
SDG 11
SDG 6, 12, 15
SDG 9
SDG 4, 9, 16
(Continued on the next page)
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Table (continued)
2020 CSR 4
Ensure that any emergency measures be strictly proportionate, limited in time and in line with European
and international standards and do not interfere with business activities and the stability of the
regulatory environment.
Ensure effective involvement of social partners and stakeholders in the policy-making process.
Improve competition in public procurement.
2020 CSR 5
Strengthen the tax system against the risk of aggressive tax planning.
2021 CSR 1
In 2022, maintain a supportive fiscal stance, including the impulse provided by the Recovery and
Resilience Facility, and preserve nationally financed investment.
When economic conditions allow, pursue a fiscal policy aimed at achieving prudent medium-term fiscal
positions and ensuring fiscal sustainability in the medium term.
At the same time, enhance investment to boost growth potential.
Pay particular attention to the composition of public finances, on both the revenue and expenditure
sides of the national budget, and to the quality of budgetary measures in order to ensure a sustainable
and inclusive recovery. Prioritise sustainable and growth-enhancing investment, in particular investment
supporting the green and digital transition.
Give priority to fiscal structural reforms that will help provide financing for public policy priorities and
contribute to the long-term sustainability of public finances, including, where relevant, by strengthening
the coverage, adequacy and sustainability of health and social protection systems for all.
2022 CSR 1
In 2023, ensure that the growth of nationally financed primary current expenditure is in line with an
overall neutral policy stance, taking into account continued temporary and targeted support to
households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Stand ready
to adjust current spending to the evolving situation.
Expand public investment for the green and digital transitions, and for energy security taking into
account the REPowerEU initiative, including by making use of the Recovery and Resilience Facility and
other Union funds.
For the period beyond 2023, pursue a fiscal policy aimed at achieving prudent medium-term fiscal
positions.
Improve the long-term sustainability of the pension system, while preserving adequacy in particular
through addressing income inequalities.
2022 CSR 2
Swiftly finalise the negotiations with the Commission on the 2021–2027 cohesion policy programming
documents with a view to starting their implementation.
2022 CSR 3
Continue the labour-market integration of the most-vulnerable groups, in particular through upskilling,
and extend the duration of unemployment benefits.
Improve the adequacy of social assistance and ensure access to essential services and adequate
housing for all.
Improve education outcomes and increase the participation of disadvantaged groups, in particular
Roma, in quality mainstream education.
Improve access to quality preventive and primary care services.
2022 CSR 4
Reinforce the anti-corruption framework, including by improving prosecutorial efforts and access to
public information, and
strengthen judicial independence.
Improve the quality and transparency of the decision-making process through effective social dialogue,
engagement with other stakeholders and regular impact assessments.
Continue simplifying the tax system.
Improve regulatory predictability and competition in the services sector, in particular in retail and
utilities, and apply competition scrutiny systematically in business transactions.
Improve competition in public procurement.
2022 CSR 5
Promote reform and investment on sustainable water and waste management and the circularity of the
economy,
the digitalisation of businesses,
green and digital skills, and
research and innovation.
No Progress
No Progress
No progress
Limited progress
Limited progress
Limited Progress
Not relevant anymore
Not relevant anymore
Not relevant anymore
Not applicable
Not applicable
SDG 8, 16
SDG 8, 16
Relevant RRP measures planned as
of 2023, 2025 and 2026.
SDG 8, 16
Relevant RRP measures planned as
of 2022 and 2024.
Relevant RRP measures planned as
of 2022 and 2023.
SDG 16
SDG 8, 16
SDG 9
Not relevant anymore
Not applicable
SDG 8, 16
Not relevant anymores
Some Progress
Some Progress
Not applicable
SDG 8, 16
Not applicable
SDG 8, 16
Substantial Progress
Limited Progress
Limited progress
Not applicable
Not applicable
Relevant RRP measures planned as
of 2023.
SDG 8, 16
SDG 8, 16
SDG 8
Progress on the cohesion policy programming documents is monitored under the EU cohesion
policy.
Limited progress
Relevant RRP measures planned as
Limited progress
SDG 1, 2, 4, 8, 10
of 2023, 2024, and 2026.
Relevant RRP measures planned as
Limited progress
SDG 1, 2, 10
of 2023, 2024, and 2026.
Relevant RRP measures planned as
Limited progress
SDG 4, 8, 10
of 2022, 2023, 2024 and 2025.
Relevant RRP measures planned as
Limited progress
SDG 3
of 2021, 2023, 2024 and 2026.
Limited progress
Relevant RRP measures planned as
Limited progress
SDG 16
of 2022 and 2023.
Relevant RRP measures planned as
Some progress
SDG 16
of 2023.
Relevant RRP measures planned as
Limited progress
SDG 16
of 2022.
Relevant RRP measures planned as
Limited progress
SDG 8, 10, 12
of 2023, 2024 and 2025.
No Progress
Limited progress
Limited progress
Limited progress
Some Progress
Limited progress
Limited progress
Relevant RRP measures planned as
of 2022, 2023 and 2026.
Relevant RRP measures planned as
of 2023 and 2026.
Relevant RRP measures planned as
of 2023, 2024 and 2026.
SDG 9
SDG 9
SDG 6, 12, 15
SDG 9
SDG 4
SDG 9
(Continued on the next page)
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Table (continued)
2022 CSR 6
Reduce overall reliance on fossil fuels
by accelerating the deployment of renewables, in particular by streamlining the permitting procedures
and the upgrading of the electricity infrastructure.
Diversify imports of fossil fuels by, inter alia, strengthening interconnection with the participation of
other countries.
Reduce the dependency on fossil fuels in buildings and transport by stepping up efforts on energy-
efficiency measures for all, especially in residential houses
and on sustainable transport, in particular through electrification.
2023 CSR 1
Wind down the emergency energy support measures in force, using the related savings to reduce the
government deficit, as soon as possible in 2023 and 2024. Should renewed energy price increases
necessitate new or continued support measures, ensure that such support measures are targeted at
protecting vulnerable households and firms, are fiscally affordable and preserve incentives for energy
savings.
Limited progress
Limited Progress
Some Progress
Limited progress
Limited Progress
Some Progress
Some Progress
Limited progress
Relevant RRP measures planned as
of 2023 and 2024.
Relevant RRP measures planned as
of 2023, 2024 and 2026.
Relevant RRP measures planned as
of 2022 and 2023.
Relevant RRP measures planned as
of 2023.
Relevant RRP measures planned as
of 2022.
SDG 7, 9, 13
SDG 7, 8, 9, 13
SDG 7, 9, 13
SDG 7, 9, 13
SDG 7, 9, 13
SDG 7, 9, 13
Limited progress
SDG 8, 16
Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net
Limited progress
SDG 8, 16
primary expenditure in 2024 to not more than 4,4 %.
Preserve nationally financed public investment and ensure the effective absorption of grants under the
No Progress
SDG 8, 16
Facility and of other Union funds, in particular to foster the green and digital transitions.
For the period beyond 2024, continue to pursue a medium-term fiscal strategy of gradual and
sustainable consolidation, combined with investments and reforms conducive to higher sustainable
Limited progress
SDG 8, 16
growth, in order to achieve a prudent medium-term fiscal position.
Pursue effective coordination and clear demarcation of macroeconomic policies in order to ensure fiscal
No Progress
SDG 8, 16
and external sustainability.
Phase out price and interest-rate caps in order to reduce distortive effects and to facilitate the smooth
Limited progress
SDG 8
transmission of monetary policy.
Target support measures in the housing sector to low-income households.
Limited progress
SDG 8, 10, 1
Strengthen the medium-term budgetary framework, align the preparation of annual budgets with the
Limited progress
SDG 8, 16
budgetary year and limit discretion in the implementation of annual budgets.
2023 CSR 2
Urgently fulfil the required milestones and targets related to strengthening judicial independence and
RRP implementation is monitored through the assessment of RRP payment requests and analysis
safeguarding the protection of the financial interests of the Union in order to allow for a swift and steady
of the bi-annual reporting on the achievement of the milestones and targets, to be reflected in the
implementation of its recovery and resilience plan. Swiftly finalise the REPowerEU chapter with a view
country reports. Progress with the cohesion policy is monitored in the context of the Cohesion Policy
of the European Union.
to rapidly starting the implementation thereof. Proceed with the speedy implementation of cohesion
Limited Progress
2023 CSR 3
Relevant RRP measures are planned
Improve the adequacy of the social assistance system, including unemployment benefits.
Limited progress
SDG 1, 2, 10
as of 2023.
Improve access to effective active labour market measures, in particular upskilling opportunities for the
Relevant RRP measures are planned
Limited progress
SDG 8, 4, 10
most disadvantaged groups,
as of 2023.
and ensure effective social dialogue.
Limited progress
SDG 16
Improve the regulatory framework and competition in services by avoiding selective and arbitrary
administrative interventions and the use of tailor-made legislation providing undue advantage or
No Progress
SDG 9, 16
disadvantage to specific companies,
by applying competition scrutiny systematically to business transactions and by reducing the use of
emergency measures to what is strictly necessary, in line with the principles of the single market and of
No Progress
SDG 9, 16
the rule of law.
2023 CSR 4
Limited progress
Relevant RRP measures planned as
Reduce overall reliance on fossil fuels
Limited progress
SDG 7, 9, 13
of 2023, 2024, 2025 and 2026.
by accelerating the deployment of renewables, including wind energy, geothermal and sustainable
biomethane, in particular by streamlining permitting procedures, while conducting regular environmental
impact assessments, and by creating a supportive and predictable regulatory environment.
Phase out subsidies for fossil fuels.
Reform the rules on the balancing of the energy market and tariff setting in order to allow for cost
recovery and an optimum use of the grid.
Where necessary, upgrade the electricity infrastructure, including grid and storage capacities.
Diversify imports of fossil fuels in order to significantly decrease dependence on Russia, including by
strengthening cooperation with other Member States, including, where necessary, on infrastructure.
Improve energy efficiency, in particular in buildings, and continue efforts to reduce overall gas
consumption.
Adjust the current system of regulated energy prices in order to encourage energy saving while
providing targeted support for low-income households.
Step up policy efforts aimed at the provision and acquisition of skills and competences needed for the
green transition.
Some Progress
No Progress
Limited progress
Limited progress
Limited progress
Limited progress
Limited progress
Limited progress
Relevant RRP measures are planned
as of 2023 and 2024.
Relevant RRP measures are planned
as of 2024 and 2025.
Relevant RRP measures are planned
as of 2024.
Relevant RRP measures are planned
as of 2024 and 2025.
Relevant RRP measures are planned
as of 2024.
Relevant RRP measures are planned
as of 2023, 2024, 2025 and 2026.
SDG 7, 8, 9, 13
SDG 12, 13
SDG 7, 8, 9
SDG 7, 8, 9
SDG 7, 8, 9
SDG 7, 8, 9
SDG 7, 13, 1, 10
SDG 4, 7, 13
Note:
* See footnote (
25
).
** RRP measures included in this table contribute to the implementation of CSRs. Nevertheless, additional measures outside the
RRP may be necessary to fully implement
CSRs and address their underlying challenges. Measures indicated as ‘being
implemented’ are only those included in the RRF payment requests submitted and positively assessed by the European
Commission.
Source:
European Commission.
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ANNEX 3: RECOVERY AND RESILIENCE PLAN
–
IMPLEMENTATION
This Annex provides a snapshot of Hungary’s
implementation of its recovery and resilience
plan (RRP), past the mid-way point of the
Recovery and Resilience Facility’s (RRF)
lifetime.
The RRF has proven central to the EU’s
recovery from the COVID-19 pandemic, helping
speed up the twin green and digital transition,
while adapting to geopolitical and economic
developments and strengthening resilience against
future shocks. The RRF is also helping implement
the UN Sustainable Development Goals and
address the country-specific recommendations
(see Annex 2).
The RRP paves the way for disbursing up to
EUR 6.5 billion in grants and EUR 3.9 billion
in loans under the RRF over the 2021-2026
period, representing 5.3% of Hungary’s
GDP (
26
).
As of mid-May 2024, EUR 0.9 billion has
been disbursed to Hungary under the RRF,
comprising EUR 0.14 billion in grants and EUR 0.78
billion in loans.
Hungary still has EUR 9.5 billion available in
grants and loans from the RRF.
This will be
disbursed after the assessment of the future
fulfilment of the remaining 368 milestones and
targets (
27
) included in the Council Implementing
Decision (
28
) (CID), ahead of the 2026 deadline
established for the RRF.
Hungary’s progress in implementing its plan
is recorded in the Recovery and Resilience
Scoreboard (
29
).
The scoreboard gives an
overview of the progress made in implementing
the RRF as a whole. Graphs A3.1 and A3.2 show
the current state of play as reflected in the
scoreboard.
Hungary’s RRP includes a REPowerEU chapter
to phase out its dependency on fossil fuels,
diversify its energy supplies and produce
more clean energy in the coming years.
To
kick-start
the
REPowerEU
chapter’s
implementation, EUR 919.6 million was disbursed
as pre-financing on 28 December 2023 and 15
January 2024. This helped launch relevant reforms
like the introduction of dynamic pricing in the retail
electricity market, improving regulatory reserve
markets, strengthening the role of energy
communities and aggregators, incentivising the
uptake of electricity storage, or increasing the
number of consumers to use smart meters and
harmonising the ways the connection application
rules are applied by the distribution system
operators.
Table A3.1:
Key facts of the Hungarian RRP
Initial plan CID adoption date
Scope
Last major revision
15 December 2021
Revised plan with REPowerEU
chapter
8 December 2023
EUR 6.5 billion in grants and
EUR 3.9 billion in loans (5.3%
of 2023 GDP)
47 investments and
67 reforms
368
0 (0% of total)
Total allocation
Investments and reforms
Total number of
milestones and targets
Fulfilled milestones and targets
Source:
RRF Scoreboard
(
26
) GDP information is based on 2023 data. Source:
https://ec.europa.eu/economy_finance/recovery-and-
resilience-scoreboard/index.html?lang=en
(
27
) A milestone or target is satisfactorily fulfilled once a Member
State has provided evidence to the Commission that it has
reached the milestone or target and the Commission has
assessed it positively in an implementing decision.
(
28
)
https://data.consilium.europa.eu/doc/document/ST-15447-
2022-ADD-1/en/pdf
(
29
)
https://ec.europa.eu/economy_finance/recovery-and-
resilience-scoreboard/country_overview.html
The plan has a strong focus on the green
transition, dedicating 66.9% of the available
funds to measures that support climate
objectives and 29.1% of its total allocation
to support the digital transition.
It also retains
a strong social dimension with social protection
measures, especially related to social inclusion,
which are expected to improve access to
mainstream education for disadvantaged students
and for those with special needs, support for
4,500 additional early age childcare places as well
as social measures dedicated to the 300 most
disadvantaged settlements experiencing high
levels of poverty.
31
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Graph A3.1:
Total grants disbursed under the RRF
EUR 0.14 billion
(2.2%)
Total allocation: EUR 6.512 billion
Note:
This graph displays the amount of grants, including pre-
financing, disbursed so far under the RRF. Grants are non-
repayable financial contributions. The total amount of grants
given to each Member State is determined by an allocation
key and the total estimated cost of the respective RRP.
Source:
RRF Scoreboard
Graph A3.2:
Total loans disbursed under the RRF
EUR 0.779
billion (19.9%)
Total allocation: EUR 3.918 billion
Source:
RRF Scoreboard
With a significantly delayed implementation
of its RRP, Hungary is still working on the
completion of its first payment request as of
15 May 2024.
Table A3.2 highlights some
measures that will be implemented before 2026
to keep making the Hungarian economy greener,
more digital, inclusive, and resilient.
Table A3.2:
Measures in Hungary's RRP
Upcoming reforms and investments
• Modernisation of the electricity sector
• Improving the attractiveness of the teaching profession
• Strengthening of the anti-corruption framework
Source:
FENIX
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ANNEX 4: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH
EU funding instruments provide considerable
resources for recovery and growth to the EU
Member States.
In addition to the EUR 10.4
billion of Recovery and Resilience Facility (RRF)
funding described in Annex 3, EU cohesion policy
funds (
30
) provide EUR 21.7 billion to Hungary for
the 2021-2027 period (
31
). Support from these two
instruments combined represents around 16.38%
of the country’s 2023 GDP, compared
to the EU
average of 5.38% of GDP (
32
). Cohesion policy
supports regional development, economic, social
and territorial convergence, and competitiveness
through long-term investment in line with EU
priorities and with national and regional strategies.
During the 2014-2020 programming period,
cohesion policy funds boosted Hungary’s
competitiveness, with tangible achievements
notably in digital connectivity, water services
and improved public services in several
areas, from childcare to telemedicine.
Over
the whole period, which financed investments until
December 2023, cohesion policy funds (
33
) made
EUR 22.5 billion available to Hungary (
34
), of which
EUR 13.2 billion has been disbursed since March
2020, when the COVID-19 pandemic began (
35
).
The achievements of cohesion policy funds over
the programming period included support for
60 000 businesses. The funding helped stimulate
growth, create jobs, improve skills, strengthen
social inclusion, boost competitiveness, provide
broadband access for an additional 256 000
households and provide improved water supply
and wastewater treatment for the population. The
(
30
) In 2021-2027, cohesion policy funds include the Cohesion
Fund, the European Regional Development Fund, the
European Social Fund Plus and the Just Transition Fund.
(
31
) European territorial cooperation (ETC) programmes are
excluded from the figure. In 2021-2027, the total
investment, including national financing, amounts to
EUR 26.1 billion.
(
32
) RRF funding includes both grants and loans, where
applicable. The EU average is calculated for cohesion policy
funds excluding ETC programmes. GDP figures are based on
Eurostat data for 2022.
(
33
) In 2014-2020, cohesion policy funds included the Cohesion
Fund, the European Regional Development Fund, the
European Social Fund and the Youth Employment Initiative.
REACT-EU allocations are included but ETC programmes are
excluded.
(
34
) In 2014-2020, the total investment, including national
financing, amounted to EUR 26.5 billion.
(
35
)
Cut-off date: 14 May 2024.
REACT-EU scheme helped mitigate the impact of
the COVID-19 pandemic, for example by providing
preferential loans to SMEs, a job-protection
scheme, support for medical staff and purchasing
vaccines. During the same period, the European
Social Fund (ESF) helped provide 177 of the least
developed municipalities access to improved
services, ranging from early childhood care to
social work and telemedicine. Another ESF
measure with a budget of EUR 3.5 million provided
support of up to HUF 40 000 (EUR 110) per month
for unemployed parents, improved access to day-
care services for 5 300 children, reduced the cost
of placement and helped at least one parent to
return to work. The ESF also funded the
digitalisation of public administration, including
electronic health records, and improved schools for
180 000 pupils and the ELI-APLS Laser Institute.
In the current programming period, cohesion
policy will provide a further boost to
Hungary’s competitiveness, to the green
transition and to social cohesion, improving
the living and working conditions of the
Hungary’s people.
In 2021-2027, the European
Regional Development Fund and the Cohesion
Fund will invest in the digital transformation of
businesses, in the uptake of advanced
technologies and business innovation, in
significant improvements to the TEN-T network
railways and clean suburban transport, water
management and sanitation, sustainable urban
development and local public infrastructure,
energy efficiency and in renewable energy. The
Just Transition Fund will help workers and
businesses in three carbon-intensive counties to
find new jobs and skills.
The European Social Fund Plus (ESF+) will
improve the quality and quantity of the
workforce,
for
example
by
funding
employment and adult learning measures.
It
seeks to make the teaching profession more
attractive, promote quality education and
contribute to inclusive education and social
inclusion. It will help fund digital skills
development by allocating EUR 236 000 to help
citizens meet the challenges of the digital
transition. Specific measures are planned to equip
at least 180 000 disadvantaged people with
entry-level digital skills. It will support further
360 000 people in digital skills development,
particularly targeting (at least 160 000) people
who previously lack at least overall basic digital
skills. With this work, cohesion policy substantially
33
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contributes to achieving the UN Sustainable
Development Goals (SDGs) in Hungary, in
particular
SDG
9
(Industry,
innovation,
infrastructure), SDG 8 (Decent work and economic
growth) and SDG 4 (Quality education).
Graph A4.1:
Distribution of cohesion policy funding
across policy objectives in Hungary
Graph A4.2:
Distribution of RRF funding by pillar in
Hungary
Green transition
Digital transformation
Smart, sustainable and
inclusive growth
Social & territorial cohesion
Health & resilience
Next generation
PO1 Smarter Europe
PO2 Greener Europe
PO3 Connected Europe
PO4 Social Europe
PO5 Europe closer to citizens
PO8 JTF specific objective
Source:
European Commission
(1) Each RRP measure helps achieve the aims of two of the
six policy pillars of the RRF. The primary contribution is shown
in the outer circle while the secondary contribution is shown in
the inner circle. Each contribution represents 100% of the RRF
funds. Therefore, the total contribution to all pillars displayed
on this chart amounts to 200% of the RRF funds allocated to
Hungary.
Source:
European Commission
Through combined action, cohesion policy and
the recovery and resilience plan (RRP) have a
mutually reinforcing impact in Hungary.
For
instance, reforms under the RRP tackle barriers to
renewable investments and connection to the grid,
which will facilitate cohesion policy investments
through financial instruments to promote the
uptake of renewable energy by companies. The
national
catching-up settlements programme
improves basic public services and housing
conditions in 300 lagging municipalities, jointly
financed by cohesion policy funds and the RRP.
The RRP and the ESF+ jointly promote inclusive
education by investing in a sustained wage
increase for teachers, teacher training, measures
supporting low achieving schools and digitalisation
in the education sector. Cohesion policy funds also
contribute to developing human and infrastructural
capacity in integrated education, while the RRP
aims to boost the capacity of inclusive schools.
The contribution of cohesion policy and RRP
funding by policy objective is illustrated by Graphs
A4.1 and A4.2.
The Technical Support Instrument (TSI) helps
Hungary invest in its public administration
and create a better enabling environment for
EU and national investment.
The TSI has
funded projects in Hungary to design and
implement growth-enhancing reforms since 2018.
The support provided in 2023 included work to
develop an interoperable health system, to
improve the efficiency and quality of health
services, to integrate environmental dimensions in
public finances, to implement the ‘do no significant
harm’
principle in public funding programmes,
work to improve the quality and use of tax
information exchanged between Member States
under the Directive on Administrative Cooperation
and to promote adult learning by introducing
micro-credentials. Following the approval of its
RRP, Hungary can request TSI support to boost its
overall capacity to implement the specific reforms
and investments included in the plan.
Hungary also receives funding from several
other EU instruments, including those listed
in Table A4.1.
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Table A4.1:
Support from EU instruments in Hungary
EU grants
Amount 2014-2020 (EUR million)
22 529.7
-
-
16 200.0
38.4
1 156.2
369.6
62.9
EU guarantees
EU Guarantee (EUR million)
European Fund for Strategic Investment
2015-2020 (8)
InvestEU 2021-2027 (9)
223.2
16.7
EU loans
Total amount
available (EUR
million)
651.5
3 918
Amount 2021-2027 (EUR million)
21 730.1
6 511.6
19.8
8 445.0
37.7
364.7
144.9
22.8
Cohesion policy
RRF grants (1)
Public sector loan facility (grant
component) (2)
Common agricultural policy (3)
EMFF/EMFAF (4)
Connecting Europe Facility (5)
Horizon 2020 / Horizon Europe (6)
LIFE programme (7)
Volume of operations (EUR million)
613.9
42.9
SURE (10)
RRF
Period
2020-2022
2021-2026
Disbursed amount (EUR million)
651.5
779.5
(1) RRF implementation period is 2021-2026.
(2) The public sector loan facility’s programming period is 2021-2025
and the amount reflects the national share in its grant
component reserved until the end of the period.
(3) Common agricultural policy programming periods are 2014-2022 and 2023-2027.
(4) EMFF
–
European Maritime and Fisheries Fund, EMFAF
–
European Maritime, Fisheries and Aquaculture Fund.
(5) Data on the Connecting Europe Facility covers transport and energy and has a cut-off date of 15 May 2024.
(6) Data on Horizon Europe (2021-2027) has a cut-off date of 13 May 2024.
(7) 2021-2027 data on the LIFE programme has a cut-off date of 15 May 2024.
(8) The amount of the EU guarantee signed under the EFSI Infrastructure and Innovation Window was derived based on the
signed amount of the operations and the average internal multiplier, as reported by the EIB (cut-off date is 31 December 2023).
(9) The amount of the EU guarantee and of the volume of operations signed under InvestEU includes the EU compartment as well
as the Member State compartments (cut-off date is 31 December 2023).
(10) SURE - European instrument for temporary support to mitigate unemployment risks in an emergency.
Source:
European Commission
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ANNEX 5: RESILIENCE
Table A5.1:
Resilience indices across dimensions for Hungary and the EU-27
Dimension
Overall resilience
Vulnerabilities
Capacities
Vulnerabilities
Capacities
Vulnerabilities
Capacities
Vulnerabilities
Capacities
Vulnerabilities
Capacities
HU
2023
RDB
HU
2024
RDB
EU-27
2024
RDB
Distribution of indicators by vulnerabilities and capacities
100%
80%
60%
Vulnerabilities
High
Medium-high
Medium
Medium-low
Low
0.53
0.48
0.64
0.55
0.59
0.46
0.37
0.58
0.53
0.48
0.50
0.54
0.55
0.51
0.60
0.49
0.36
0.53
0.47
0.75
0.50
0.67
0.47
0.67
0.44
0.70
0.52
0.65
0.41
0.65
Social and economic
Green
40%
20%
Digital
0%
Vulnerabilities
(60 indicators)
Capacities
(64 indicators)
Geopolitical
Capacities
High
Medium-high
Medium
Medium-low
Low
(1) The synthetic indices aggregate the relative resilience situation of countries across all considered indicators. For an indicator,
each country’s relative situation in the latest available year is compared with the collection of values of that indicator
for all
Member States and all years in the reference period.
Source:
Resilience Dashboards - version spring 2024, data up to 2022
This Annex uses the Commission’s resilience
dashboards (RDB) (
36
) to illustrate Hungary’s
relative
resilience
capacities
and
37
vulnerabilities ( ) that may be of relevance
for societal, economic, digital and green
transformations, and for dealing with future
shocks and geopolitical challenges. (
38
)
According to the RDB’s set of resilience
indicators, Hungary has medium overall
vulnerabilities (similar to the EU average)
and medium overall capacities (lower than
the EU average), both of which have
remained stable with respect to last year.
This is reflected in the distribution of indicators
across different resilience categories: around 40%
of both vulnerability and capacity indicators fall
(
36
)
Https://ec.europa.eu/info/strategy/strategic-
planning/strategic-foresight/2020-strategic-foresight-
report/resilience-dashboards_en.
Resilience is defined as the
ability not only to withstand and cope with challenges but
also to undergo transitions, in a sustainable, fair, and
democratic manner. 2020 Strategic Foresight Report:
Charting the course towards a more resilient Europe
(COM(2020) 493).
(
37
) Vulnerabilities describe features that can exacerbate the
negative impact of crises and transitions, or obstacles that
may hinder the achievement of long-term strategic goals,
while capacities refer to enablers or abilities to cope with
crises and structural changes and to manage transitions.
(
38
) This Annex is linked to Annex 1 on SDGs, Annex 6 on the
green deal, Annex 8 on the fair transition to climate
neutrality, Annex 9 on resource productivity, efficiency and
circularity, Annex 10 on the digital transition and Annex 14
on the European pillar of social rights.
into the top two categories (blue and light blue,
medium-low or low vulnerability and medium-high
or high capacity) and into the bottom two (orange
and light orange, medium-high or high
vulnerability and medium-low or low capacity).
With respect to the 2023 RDB, Hungary has
seen its social and economic vulnerabilities
deteriorate.
The reasons for the deterioration in
vulnerabilities are the proportion of employment in
manufacturing with a high risk of automation (now
the highest in the EU), regional dispersion in
household income (now the second highest in the
EU), and the variation in performance explained by
students’ socio-economic status. The country’s
social and economic capacities have also
deteriorated for reasons such as the drop in the
insurance sector solvency capital ratio and the
lessening of the impact of social transfers (other
than pensions) on poverty reduction. The country is
currently below the EU average in specific capacity
indicators such as the proportion of children under
3 in formal childcare, or standardised preventable
and treatable mortality.
In the green dimension, Hungary has mostly
medium and medium-low vulnerabilities,
except for fossil fuel subsidies, energy used
in
information
and
communication
technology (ICT), and farm income variability
(medium-high
vulnerability).
Its overall
vulnerabilities have stayed stable, with a higher
waste generation rate, fossil fuel subsidies and
farm income variability, but a lower harmonised
risk indicator 1 for pesticides. Its green capacities
36
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are more mixed, having remained mostly stable,
and below the EU average. The share of the
environmental goods and services sector from
gross value added is the lowest in the EU (2021
data).
In
the
digital
dimension,
Hungary’s
vulnerabilities and capacities are mostly
stable
with respect to last year’s dashboard,
but it lags behind the EU on both counts.
It
continues to have high vulnerabilities in terms of
the broadband access gap by company size (with
some improvement) and the ICT specialist gender
gap. It still shows low capacities in terms of adults’
and young people’s advanced digital skills, and
high capacities in areas such as the use of social
networks and gross value added in ICT. It has also
improved a lot in the use of the collaborative
economy. However, it remains below the EU
average in capacity indicators such as ICT Master’s
graduates.
Its geopolitical vulnerabilities have remained
stable while capacities have improved, and
are now both on par with the EU average.
Hungary deteriorated in net lending/borrowing and
supplier concentration of energy carriers, while
there have been improvements in intra-EU trade in
energy, trade openness (extra-EU), and the net
migration rate.
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ENVIRONMENTAL SUSTAINABILITY
ANNEX 6: EUROPEAN GREEN DEAL
Hungary has made progress in the green
transition, with more action needed
on
specifying the funding framework for the climate
and energy transition, sustainable water
management, the institutional framework on
climate adaptation, and other areas. This Annex
provides a snapshot of climate, energy, and
environmental aspects of the transition in
Hungary (
39
).
Hungary’s draft updated national energy and
climate plan (NECP) does not yet map all its
investment needs against sources of funding
to achieve its 2030 climate and energy
targets.
The plan includes only limited
information on the investment needed to
implement the planned policies and measures. It
provides information on total investment needs
until 2035 and for 2036-2050 per sector, covering
transport, electricity, district heating, households,
industry and services, but omitting agriculture. The
plan outlines some of the main sources of
financing, but only includes EU funds (
40
).
Hungary is projected to reach its 2030 effort
sharing target, provided that it adopts and
implements
the
planned
additional
measures (
41
).
In 2022, Hungary’s greenhouse
gas emissions from its effort sharing sectors are
expected to be 37.5% below 2005 levels.
Additional policies considered in Hungary’s draft
updated NECP are projected to reduce these
emissions by 23.8% from 2005 levels. This means
that Hungary will exceed its effort sharing target
to achieve a 18.7% reduction by 5.1 percentage
points. However, with current policies, Hungary is
(
39
)
This Annex is complemented by Annex 7 on energy transition
projected to reduce its effort sharing emissions by
20.2% compared to 2005 levels by 2030, leaving
a
gap of 3.6 percentage points below Hungary’s
target (
42
). This highlights the importance of
implementing the full range of policies and
measures in the draft updated NECP. The draft
plan reiterates Hungary’s legally binding
commitment to achieve climate neutrality by
2050.
Graph A6.1:
Greenhouse gas emissions
from the effort sharing sectors in Mt CO2eq,
2005-2022
50
45
40
35
MtCO2e
30
25
20
15
10
5
0
2005
2022
Waste
Agriculture
Domestic transport (excl. aviation)
Small industry
Buildings (under ESR)
Source:
European Environment Agency
There is scope for increasing
Hungary’s
targets for renewable energy and energy
efficiency in its final updated NECP (
43
).
Hungary's renewable energy contribution set in its
draft updated NECP, 29% by 2030, is below the
required contribution of 34%. Its energy efficiency
contribution of 17.9 Mtoe in primary energy
consumption for 2030 set in the draft updated
NECP is also less ambitious than required by the
Energy Efficiency Directive. No target for primary
(
42
) The effort sharing emissions for 2022 are based on
approximated inventory data. The final data will be
established in 2027 after a comprehensive review.
Projections on the impact of current policies (‘with existing
measures’, WEM) and additional policies (‘with additional
measures’, WAM) as per Hungary’s draft updated NECP.
(
43
)
The EU target set out in the revised Renewable Energy
and competitiveness, Annex 8 on the fair transition to
climate neutrality, Annex 9 on resource efficiency, circularity,
and productivity, and relevant topics in other annexes to this
country report.
(
40
)
See the Commission’s (2023)
assessment of the draft
national energy and climate plan of Hungary.
(
41
) The national greenhouse gas emission reduction target is
laid down in Regulation (EU) 2023/857 (the Effort Sharing
Regulation). The aim is to align action in the sectors
concerned with the objective to reach the EU-level economy
wide target of greenhouse gas reductions of at least 55%
relative compared to 1990 levels. The target also applies to
the sectors outside the current EU Emissions Trading System,
notably buildings (heating and cooling), road transport,
agriculture, waste, and small industry (known as the effort
sharing sectors).
Directive is to have 42.5% of gross final energy consumption
coming from renewable energy sources by 2030, with the
aspiration to reach 45%. The formula in Annex I to Directive
(EU) 2023/1791 sets the indicative national contribution for
Hungary at
16,2
Mtoe for final energy consumption. The
Commission communicated a corrected national contribution
of 29.04 Mtoe in final energy consumption for 2030 in
accordance with Article 4(5) of the Energy Efficiency
Directive to increase
the contribution towards the Union’s
binding energy efficiency target. See the
Commission
Recommendation of 18.12.2023 to Hungary.
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energy consumption has been provided in the draft
plan.
In Hungary there is still much to do to curb
rising greenhouse gas emissions from road
transport (
44
).
In 2022, electric vehicles
represented only 0.8% of its passenger car fleet.
In 2023, Hungary’s 3
250 publicly accessible
charging points provided one charging point for
every nine e-vehicles, compared to the EU average
of 1:10. Buses and coaches and rail accounted for
20% of passenger transport, with passenger cars
accounting for only 78% (EU average: 85%). Rail
accounts for a significant 25% of freight transport,
while 66% of freight is transported by road (EU
average: 75%). Only 41% of Hungary’s rail
network is electrified (EU average: 56%).
Hungary has the potential to increase carbon
removals through land use, land use change
and forestry (LULUCF).
Hungary achieves
significant carbon removals through its forests,
but its cultivated arable land is a major emitter of
greenhouse gases. To reach the 2030 LULUCF
target, additional carbon removals of 934 kt CO
2
eq
are needed (
45
).
Climate change poses challenges to
Hungary’s forests, soils, water-related
activities (due to both droughts and floods),
and other areas. Threats include the impairment of
forests’ carbon removal capacity and declining
agricultural productivity. Water management in
changing climatic conditions requires particular
attention due to risks of electricity disruption as
floods, heat and drought impact the energy
production. Appropriate institutional mechanisms
are crucial for climate adaptation. Here, Hungary
faces shortcomings in its governance and
coordination structures that hamper effective
planning, climate adaptation solutions and
investment, the monitoring, evaluation and review
of policies, coordination between different sectors
of government, and the preparation and updating
of sub-national policies (
46
).
Hungary
has
significant
room
for
improvement on wastewater and drinking
water infrastructure
(
47
). Water resources are
under major pressure, mainly due to pollution,
hydromorphological changes, and unsustainable
agricultural practices, notably the use of nutrients.
Water bodies are significantly affected by
abstraction and pollution from industrial activities.
Diffuse pollution affects all surface waters, while
a majority is under significant pressure from point
source pollution and water abstraction. Abstraction
pressures
also
affect
all
groundwaters.
Exceedances of several pollutants were recorded
in drinking water in several municipalities. Hungary
also faces a systemic problem in tackling nutrient
loss from agriculture (
48
). In 2022, only 11,3% of
surface water bodies reached good ecological
status and only 46% reached good chemical
status (
49
). Hungary is increasingly exposed to
climatic risks, exacerbated by climate change.
Droughts are common in the great plains (
50
), and
one quarter of Hungary’s territory is exposed to
floods (
51
). The current irrigation strategy raises
concerns regarding long-term sustainability where
‘grey’ infrastructures (such as the rehabilitation of
irrigation canals) are favoured to nature-based
solutions (
52
). The investment gap to achieve
sustainable water management is estimated at
EUR 589 million per year over 2021-2027.
(
46
) See the Commission’s
2023
assessment
and
recommendation
on Hungary’s progress on climate
adaptation.
(
47
) There are infringement cases against Hungary for non-
compliance with the Drinking Water Directive and non-
compliance with the urban Wastewater Directive.
(
48
)
Commission Report on the implementation
of the Nitrates
Directive.
(
49
) In the second river basin management plan (RBMP), the
chemical status of 46,5% and the ecological status of
13.5% of surface water bodies was unknown. The
assessment of the third RBMP is not yet available.
(
50
)
Financing-water-supply-sanitation-and-flood-protection-
country-fact-sheet-hungary.pdf (oecd.org)
(
51
) European Commission, Assessment of second cycle
preliminary flood risk assessments and identification of
areas of potential significant flood risk under the Floods
Directive: Member State:
Hungary, 2022.
(
52
) Examples of nature-based solutions for water retention can
be found on the Natural Water Retention Measures Platform,
European NWRM+ platform.
(
44
) Unless otherwise indicated, data in this section refer to
2021. See European Commission, 2023,
EU transport in
figures, transport.ec.europa.eu.
( ) National LULUCF targets of the Member States in line with
Regulation (EU) 2023/839.
45
39
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% of total utilised agricultural area
Nature is under pressure in Hungary,
resulting in biodiversity loss and the
deterioration of habitats.
In 2021, Natura 2000
sites covered 21.4% of Hungary’s territory
(
53
).
However, in 2020, Hungary reported that more
than half of its habitat assessments had
worsened (
54
). Moreover, less than 8% of the
protected forest habitats are in a favourable
conservation status (
55
). However, the common
farmland bird index remained stable between
2018 and 2020, slightly above the EU average.
Fragile habitats such as wetlands, peatlands and
grasslands are directly threatened by damaging
economic activities.
Hungary’s
agri-food sector has a major
environmental footprint.
The share of the
country’s total utilised agricultural area (UAA)
under organic farming remains quite low, at 5.8%
in 2021 (
56
). Hungary is far from achieving its
ambition of having 280 000 hectares under
organic farming by 2027. Only 4.2% of Hungary’s
agricultural land was covered with landscape
features in 2022. Hungary’s livestock density index
decreased to 0.43% in 2020 (
57
). However, the
intensive rearing of poultry and pigs was the
industrial activity that placed the highest burden
on the environment in terms of emissions of
ammonia and non-methane volatile organic
compounds. In 2021, the agricultural sector was
responsible for 91.4% of ammonia emissions (
58
).
Hungary did not meet its 2020 and 2021 emission
reduction commitments for ammonia under the
National Emission Ceilings Directive (
59
) and is at
risk to miss its 2020-2029 commitments. 58% of
Hungarian soil (
60
) could be considered as
unhealthy (
61
). The loss of organic carbon affects
(
53
) Above the EU average.
(
54
) European Environment Agency,
Conservation status and
trends of habitats and species,
December 2021.
(
55
)
State of nature in the EU - European Environment Agency
(europa.eu) 
(
56
) Versus 9.1% of the EU average
in
2020.
(
57
) Below the EU average of 0.75 in 2020.
(
58
)
Above the
EU average of 90.7%.
Statistics | Eurostat
(europa.eu)
(
59
)
Hungary
–
air pollution country fact sheet - European
Environment Agency (europa.eu)
(
60
)
SWD 417 final of 05.07.2023
(
61
) However, not all soil degradation processes could be
quantified for all land uses. This number simply indicates an
order of magnitude.
70% of cropland and grassland area, while soil
erosion affects 41% of cropland area. In Hungary,
the net stock change of organic soils in cropland
and grassland areas decreased over time and
reached 1 516 kt in 2021.
Graph A6.2:
Changes in livestock density and
organic farming
10
8
6
2
1
4
2
0
0
2016
2020
Livestock density index Hungary (% LSU per ha)
Livestock density index EU-27 (% LSU per ha)
Organic farming Hungary (% of total utilised agricultural area)
Organic farming EU-27 (% of total utilised agricultural area)
Livestock unit (LSU)/ha of UAA: it measures the stock of
animals (cattle, sheep, goats, equidae, pigs, poultry and
rabbits) converted in LSUs per hectare of UAA.
Source:
Eurostat
Hungary would benefit from investing more
in sustainable water management, in the
circular economy, and in pollution prevention
and control.
The environmental investment gap
increased for the 2021-2027 period, reaching EUR
1.7 billion. The investment gap for water
management has more than doubled in this
sector (
62
). The highest investment gap concerns
pollution prevention and control which has more
than doubled since 2014-2020. The gap for the
circular economy has also increased. The gap for
biodiversity has decreased but remains excessive.
(
62
) The investment gap in sustainable water management
concerns in particular wastewater collection and treatment,
water supply infrastructure, and green infrastructures.
40
% LSU per hectare
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2883992_0042.png
Graph A6.3:
Environmental investment gap, annual
average
800
717
768
600
589
544
million EUR
400
288
200
186
201
316
0
Pollution prevention
and control
Water management
2014-2020
Circular economy
and waste
2021-2027
Biodiversity and
ecosystems
The numbers are computed by the European Commission
based on the latest internal reports, Eurostat, EIB and national
data sources.
Source:
European Commission
41
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Table A6.1:
Indicators tracking progress on the European Green Deal from a macroeconomic perspective
Target
2005
Progress to climate and energy policy targets
Greenhouse gas emission reductions in effort sharing sectors
(1)
Net greenhouse gas removals from LULUCF
(2)
Share of energy from renewable sources (1)
(3)
Energy efficiency: primary energy consumption
(3)
Energy efficiency: final energy consumption
(3)
Mt CO
2eq,
%, pp
Kt CO2eq
%
Mtoe
Mtoe
Distance
WEM
WAM
2019
2020
2021
2022
2030
47,826.9
-6 003
7%
26.3
18.7
-7%
-5 382
13%
24.6
18.6
-9%
-7 106
14%
23.9
18.0
-3%
-7 195
14%
24.9
19.1
-8%
-6 803
15%
23.9
18.3
-19%
-5,724
34%
23.3
16.2
EU-27
-6
n/a
-
5
n/a
-
Projected
2030
 
11.4
n/a
n/a
n/a
 
10.1
 
 
n/a
2022
-
14.9
-
-
-
-
-
41
-
2018
Green transition: mobility
Greenhouse gas emissions: road transport
Share of zero-emission vehicles in new registrations
(4)
Number of publicly accessible AC/DC charging points
Share of electrified railways
Green transition: buildings
Greenhouse gas emissions: buildings
Final energy consumption in buildings
Climate adaptation
Climate protection gap
(5)
2019
 
 
-
1.2
-
40.2%
 
-
94.5%
 
-
2019
1.3
16.7
1,011
81
5.71
-
2020
 
-
2.3
1231
40.0%
 
-
97.6%
 
1.3
2020
-
14.3
1,056
81
6.03
-
93
-
2021
 
14.0
3.5
2636
40.8%
 
13.5
103.4%
 
1.2
2021
-
14.5
1,155
-
5.81
-
91
-
2022
 
15.1
4.2
3323
-
 
11.8
94.7%
 
1.1
2022
-
14.5
-
-
-
-
-
58
-
2021
 
769.0
9
299178
56.1%
 
537.0
104.0%
 
1.5
2020
3.6
14.2
545
14.7
78
9.1
20.42
130
7,904
2022
786.6
12.1
446956
-
 
486.7
97.2%
 
1.5
2021
-
14.8
584
-
-
-
131
-
 
Mt CO2e
%
 
%
 
Mt CO2e
2015=100
 
score 1-4
 
-
0.9
-
39.7%
 
-
96.9%
 
-
2018
State of the environment
Water |
Water exploitation index (WEI+) (1)
(6)
Circular economy |
Material footprint
(7)
Pollution |
Years of life lost due to air pollution by PM2.5
(8)
Biodiversity |
Habitats in good conservation status
Common farmland bird index
Green transition: agri-food sector
Organic farming
Nitrates in groundwater
Food waste per capita
Share of soil in poor health
(11)
Soil organic matter in agricultural land
(12)
% of total utilised agricultural area
mg NO
3
/litre
Kg per capita
%
Mt per ha
(10)
(9)
% of renewable freshwater
tonnes per person
per 100.000 inhabitants
%
2000=100
1.4
15.9
1,420
13.3
81
3.92
-
286
-
Sources:
(1) Member States’ emission data for 2019 and 2020 are in global warming potential (GWP) values from the 4th
Assessment Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC). Member States’ 2005 base year emissions
under Regulation (EU) 2018/842, emissions data for 2021 and 2022, and 2030 projections are in GWP values from the 5th
Assessment Report (AR5) of the IPCC. 2021 data are based on the final inventory reports, 2022 data are based on approximated
inventory reports
and European Environmental Agency’s calculation of effort sharing emissions. The final data for 2021 and 2022
will be established after a comprehensive review in 2027. The 2030 target is in percentage change of the 2005 base year
emissions. Distance to target is the gap between the 2030 target and projected effort sharing emissions with existing measures
(WEM) and with additional measures (WAM), in percentage change from the 2005 base year emissions. The measures included
for the 2030 emission projections reflect the state of play as reported in Member States' draft updated national energy and
climate plans or, if unavailable, as reported by 15 March 2023 as per Regulation 2018/1999. (2) Net removals are expressed in
negative figures, net emissions in positive figures. Reported data are from the 2023 greenhouse gas inventory submission. 2030
value of net greenhouse gas removals as in Regulation (EU) 2023/839
–
Annex IIa. (3) The 2030 national objectives for
renewable energy and energy efficiency are indicative national contributions, in line with Regulation (EU) 2018/1999 (the
Governance Regulation), the EU-level 2030 renewable energy target set out in Directive EU/2018/2001 amended by Directive
EU/2023/2413 (the revised Renewable Energy Directive)
–
42.5% of gross final energy consumption with the aspiration to reach
45%
–,
and the formula in Annex I to Directive (EU) 2023/1791 (the Energy Efficiency Directive). (4) Battery electric vehicles (BEV)
and fuel cell electric vehicles (FCEV). (5) The climate protection gap refers to the share of non-insured economic losses caused by
climate-related disasters, based on modelling of the risk from floods, wildfires, windstorms, and the insurance penetration rate.
Scale: 0 (no protection gap)
–4
(very high gap) (European Insurance and Occupational Pensions Authority, 2022). (6) Total water
consumption in renewable freshwater resources available for a territory and period. (7) Material extractions for consumption and
investment. (8) Years of potential life lost through premature death due to exposure to particulate matter with a diameter of less
than 2.5 micrometres. (9) Share of habitats in good conservation status according to the records submitted under Art. 17 of the
Habitats Directive (Directive 92/43/EEC) for 2013-2018. (10) Multi-species index measuring changes in population abundances of
farmland bird species. (11) Source: annex 12 of the Commission’s proposal for a soil monitoring law, SWD (2023) 417 final. (12)
Estimates of organic carbon content in arable land.
42
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ANNEX 7: ENERGY TRANSITION AND COMPETITIVENESS
This Annex (
63
) sets out Hungary’s progress
and challenges in accelerating the net-zero
energy transition while bolstering the EU’s
competitiveness in the clean energy
sector (
64
).
It considers measures and targets put
forward in the draft updated National Energy and
Climate Plans (NECP) for 2030 (
65
).
Hungary has shown progresses in terms of
renewable energy development and aims to
become a manufacturing hub for batteries.
However, the lack of a strong price signal, reliance
on Russia fossil fuels and grid constraints hinder
the competitiveness of the energy sector.
Retail energy prices for households have not
reflected the tight energy market conditions
in the past 2 years, due to a government
price cap
which keeps them at a level
considerably lower than the EU average. Despite
the 2022 changes in household price ceilings,
Hungarian energy (electricity and gas) retail prices
remain among the lowest in the EU.
The situation is very different for industrial
consumers, who are not covered by the price
regulation and have seen their electricity and
gas prices drastically increased throughout
2022, remaining at levels considerably above
the EU average.
While gas prices peaked in
December 2022 before commencing a steep
decline, electricity prices for non-household
consumers more than doubled in the first half of
2023, the largest increase in the EU.
Graph A7.1:
Hungary’s energy retail prices for
households and industry & service
0.35
0.30
0.25
€/KWh
0.20
0.15
0.10
0.05
0.00
Gas (industry & service) - HU
Gas (households) - HU
Electricity (industry & service) - HU
Electricity (households) - HU
Gas (industry & service) - EU
Gas (households) - EU
Electricity (industry & service) - EU
Electricity (households) - EU
(1) For industry, consumption bands are I3 for gas and IC for
electricity, which refer to medium-sized consumers and
provide an insight into affordability
(2) For households, the consumption bands are D2 for gas
and DC for electricity
(3) Industry prices are shown without VAT and other
recoverable taxes/levies/fees as non-household consumers
are usually able to recover VAT and some other taxes
Source:
Eurostat
In relative terms, electricity prices for non-
household
consumers
have
increased
significantly
compared to the US, Japan, and the
UK, thus potentially affecting the international
competitiveness of energy-intensive industries in
Hungary.
Graph A7.2:
Trends in electricity prices for non-
household consumers (EU and foreign partners)
350
300
Index ( 2018 S2 = 100)
250
200
150
100
50
(
63
) It is complemented by Annex 6 as the European Green Deal
focuses on the clean energy transition and by Annex 8 on
action taken to protect the most vulnerable groups,
complementing ongoing efforts under the European Green
Deal, REPowerEU and European Green Deal Industrial Plan.
(
64
) In line with the Green Deal Industrial Plan and the Net-Zero
Industry Act
(
65
) Hungary submitted its draft updated NECP in August 2023.
The Commission issued an assessment and country-specific
recommendations on 18 December 2023.
Commission
Recommendation, Assessment (SWD) and Factsheet of the
draft updated National Energy and Climate Plan of Hungary -
European Commission (europa.eu)
0
JP
UK
US
HU
EU
(1) For Eurostat data (EU and HU), the band consumption is ID
referring to large-sized consumers with an annual
consumption of between 2 000 MWh and 20 000 MWh, such
as in electricity intensive manufacturing sectors, and gives an
insight into international competitiveness
(2) JP = Japan
Source:
Eurostat, IEA
Hungary’s cap on electricity and gas prices
for households remains largely untargeted,
43
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weakening incentives for energy saving and
producing regressive distribution effects.
Due
to increasing energy prices, the cost of the price
freeze amounted to around 2% of GDP in 2022-
2023, thus provoking a growing strain on the
public budget. Since August 2022 the capped
utility price applies up to the level of average
consumption, with the excess being exposed to a
considerably higher price. However, price
regulation still does not account for the
households’ income level and prices are not
responsive to market dynamics. As Hungary
reduced its gas demand between August 2022
and December 2023 by 19% compared to the
average of the previous five years, the level of
average consumption could be updated to reflect
new lower levels.
Consumer empowerment opportunities in the
electricity and gas markets are still limited,
and the deployment of smart meters is still
lagging.
Switching times are still well above the
legal time limit of three weeks and only 7.3% of
final household consumers had smart meters in
2022 (EU average: 80%).
In 2022, 100% of household consumers held
fixed-price contracts in both electricity and
gas.
A reform in the Hungarian REPowerEU
Chapter of the RRP aims at facilitating the
application of dynamic pricing in the residential
consumer and microenterprises segments.
Hungary allows for collective self-consumption
within the same building. However, unanimity
among co-owners is required to install solar PV on
multi-apartment buildings. In terms of operational
support, Hungary has recently introduced
measures, including as part of their reform in the
recovery and resilience plans, to phase out net-
metering that does not account separately of
electricity injected and taken off the grid, for the
purpose of calculating the network tariffs. There
are no ‘time of use’ grid tariffs in place in Hungary,
limiting the incentive for active consumers to align
their consumption with production in real-time
during off-peak hours.
Hungary is providing financial support to
energy communities through an open call for
proposals and has planned to invest in social
solar plans under its RRP.
However, to date,
there are very few energy communities
operational in Hungary, in part due to a limited
enabling framework. There is no indicative target
for the number of energy communities by 2025.
Hungary continues to heavily depend on
Russia for most of its imports of fossil fuels
and diversification efforts have remained
slow.
Serbia is the main entry point for Russian
gas into the country, following the significant
decrease in flows through Ukraine. Following the
expiration of the Russia-Ukraine transit contract at
the end of 2024, Hungary will rely for a dominant
share of its supply on a single-entry point, further
increasing supply disruption risks. Plans to secure
additional supply sources through increased
domestic production and drawing from Azeri gas
supplies, future production in Romania, and Greek
and Turkish LNG via the “Solidarity Ring” project
and the Krk terminal (to be expanded from 2.9 to
6.1 bcm/y), have been thwarted by infrastructure
bottlenecks in neighbouring countries and the lack
of a clear source diversification strategy. Following
successful
market
tests,
the
Hungarian
transmission system operator (TSO) is cooperating
with the respective national TSOs to increase the
capacity of the interconnection points with
Romania and Slovakia. In 2022, Hungary depended
on Russia for around 84% of its oil imports, the
highest level since 2014. Moreover, MOL refineries
are designed to process mainly Russian Urals
crude and would require substantial investment to
process other crude grades. Hungary has a large
storage capacity of around 6.5 bcm, equal to 67%
of its annual gas consumption in 2022. The
country operates five underground storage
facilities managed by two operators: HEXUM (UGS
Szöreg-1) and HGS (Pusztaederics, Zsana-Nord,
Kardoskút-Pusztaszolos, Hajdúszoboszló). Hungary
fulfilled its gas storage obligations last winter,
reaching 98% by 1 November 2023, and ended
the winter season with a storage filled at 66.22%
by 1 April 2024.
Electricity demand is projected to increase
rapidly, especially in the industrial sector, as
Hungary pursues plans to electrify its
economy and to become a manufacturing hub
for electric vehicles (EVs) and batteries.
Hungary depends on imports for around one third
of its electricity supply, and its domestic electricity
supply is largely reliant on its four Russia-designed
nuclear reactors at the Paks power plant, which
generate almost half of its electricity. In December
2023, the operator submitted a plan for Paks
which would extend its lifetime until the 2050s.
The completion of the two additional Rosatom 1.2
GW reactors is scheduled for 2030. To address
increasing electricity needs and provide flexibility
to the electricity system, 1.5 GW combined cycle
44
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gas turbine plants are
commissioned by 2027.
planned
to
be
Hungary
electricity
system
is
well
interconnected.
Interconnection capacities are
available with all neighbouring countries and in
total their capacity reaches 50% of the total
domestic generation capacities.
Hungary intends to phase out coal from
domestic electricity production by 2030
as
declared in the draft updated NECP, with a
deadline for phase out of lignite for the Mátra
Power Plant by 2025, to which Hungary committed
in their territorial just transition plan under the
Just Transition Fund in 2022. However, by
government Resolution 1500/2023 the lignite
phase-out deadline for Mátra was postponed until
the commissioning of the combined cycle gas
turbine power plant that is planned for the Mátra
site, expected by the end of 2027. Any further
postponement of the coal phase out of Matra after
2025 would hinder Hungary’s achievements under
the JTF. Hungary also intends to keep lignite-based
electricity production available as a strategic
reserve. Hungary's intentions in the area of coal
may put at risk the achievement of climate targets
and the just transition objectives.
2023 confirmed the strong growth of
installed solar energy capacity in Hungary,
with 1.6GW of newly installed capacity,
bringing the total to around 5.6GW.
In its draft
updated NECP, Hungary plans to reach 12 GW of
installed solar capacity by 2030. Residential PVs
installations are supported via the RRP and
national programs. In January 2024 the
government had almost completely lifted the ban
(imposed in October 2022) on solar energy feed-in
to the grid.
Graph A7.3:
Hungary's installed renewable
capacity (left) and electricity generation mix
(right)
(1) "Other" includes solid biofuels, renewable municipal waste,
biogas and geothermal energy
Source:
IRENA, Ember
Wind energy has been at a standstill due to
the hostile regulatory environment, but
legislative developments as laid out in the
recovery and resilience plan (RRP) should
improve the outlook significantly.
Wind
represents less than 1.5% of total installed
capacity in Hungary and the wind capacity target
of 1GW indicated in the draft updated NECP is
modest. On 1 January 2024, a new package of
legislation reduced the setback distance to 700
meters from the current 12km and repealed the
mandatory tendering procedure for wind farm
capacity. However, various factors (the scarce grid
connection capacity, the long applications queue
and
remaining
high
security
distance
requirements, which considerably reduce the
available areas for wind projects) still cast doubts
over wind power development in the country.
The major challenge to future renewable
energy growth is represented by scarce grid
capacity,
which constrains further renewables
expansion and creates balancing issues for the
grid. New energy projects applying today for
connection to the grid cannot expect to be
connected before 2030. The grid expansion and
upgrade will need to accelerate to keep up the
pace of new connection requests and achieve
Hungary’s renewables targets. The RRP reform to
harmonise grid connection requirements has the
potential
to
significantly
alleviate
the
administrative burden on project developers and
increase transparency and efficiency. Plans for
increasing manufacturing capacity in energy
intensive sectors (EVs and Batteries) will put
additional pressure on the grid. It is important that
grid is expanded especially in those area of the
country with more renewable energy potential.
45
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Hungary’s National Hydrogen Strategy
and
NECP envisage the installation of 240MW of
electrolyser capacity by 2030.
Hungary aims to
use hydrogen for industrial decarbonisation and in
heavy-duty transport by 2030. By 2030, Hungary
aims to install 240 MW of electrolysis capacity.
Hungary is exploring adapting its gas storage
facilities to the shift from east-west transport
routes to a more south-north-west direction and
making them hydrogen-compatible.
Hungary´s
final
energy
consumption
contribution is not in line with reaching the
2030 EU energy efficiency target, and
further progress is needed to reach it.
In
2022, Hungary’s primary energy consumption
decreased by 4.3% compared to 2021 and was
3.2% higher than in 2012. Final energy decreased
by 4.1% year on year and was 11.2% higher than
in 2012. In 2022, the sector that decreased its
consumption most was industry, which cut its final
energy consumption by 9.4%. The worst
performance came from the transport sector,
which increased its final energy consumption by
10.3%. High energy prices for industrial consumers
might have impacted energy consumption in the
industrial sector.
Hungary’s
energy efficiency improvements
have been lagging, also due to weak price
signals.
In the last decade, its final energy
consumption has been on an increasing trend and
its primary and final energy intensity is
significantly higher than the EU average. RRP
support has been complemented by the new
REPowerEU Chapter, notably by new investment in
residential and public buildings and in energy-
efficiency improvements in businesses. The Energy
Efficiency Obligation Scheme introduced in 2021
has produced good results in the industrial sectors
not covered by the price cap and therefore more
receptive to adopting energy efficiency solutions.
The energy performance of the building stock
is very low and regulated residential energy
prices
provide
little
incentive
for
renovations.
Final energy consumption in
residential did not decrease between 2018 and
2022, while the national long-term renovation
strategy plans a reduction in building energy
consumption by 20% during the same period.
Heating and cooling represent the highest share of
final energy consumption in residential being at
about 85% in 2021, with renewables supplying
20.35% of the total energy used for heating and
cooling across all sectors. A 2.5% increase year on
year, after five years of decrease or stagnation,
was mainly driven by a significant decrease in
consumption.
The heat pump market has seen a significant
acceleration following the increase of fossil
fuel prices.
Approximately 15 000 heat pumps
were sold in 2022, an increase of 110% over the
previous year (
66
), reaching a total stock of around
36 000 installed heat pumps in the residential
sector. In H1 2023, average electricity prices were
3.45 times more than natural gas in residential
and 2.8 times more than natural gas in the non-
residential sector. These indicates that the context
is apparently unattractive financially for the
deployment of efficient heat pumps in the
residential sector and slightly favourable in the
non-residential sector. Bioenergy still remains the
by far primary energy source for household
heating purposes, which poses sustainability and
air pollution issues.
Hungary
has
limited
domestic
PV
manufacturing capacity compared to the
total solar energy capacity installed in the
country.
One Hungarian manufacturer stands as
the sole active player, operating one production
facility with an annual cell manufacturing capacity
of approximately 100MW. It has ambitious plans
to expand this capacity significantly, targeting a
range of 500-600MW in the coming years.
Hungary is positioning itself as one of the
world's leading batteries suppliers for EVs.
A
South-Korean multinational operates a prominent
battery cell plant in Göd, recently expanded to a
total capacity of 30 000 MWh. The same company
has announced an investment project of nearly
EUR 62 million in September 2023, to boost
research and development activities in Göd.
Another South Korean company operates a plant in
Komárom with a capacity of 7 500 MWh. In 2023,
several manufacturers
–
mainly Chinese -
announced around EUR 10 billion of investment in
battery manufacturing. A planned joint Chinese-
German investment project in Debrecen is worth
more than EUR 7.3 billion and would have a total
capacity of 100GWh. This would be the largest
battery manufacturing plant in Europe.
Hungary’s
(
66
) Energy Poverty Advisory Hub, 2023.
46
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appeal for battery producers is also explained by
the presence of a significant number of
automotive manufacturers already based in the
country. Adding to the momentum, a prominent
Chinese company announced plans in December to
construct a new EV plant near the southern
Hungarian city of Szeged.
Public R&I spending for Energy Union
priorities (
67
) reached EUR 64 m in 2021, a
significant jump forward compared to 2020
(EUR 16 m);
half of it was invested in smart
energy systems, while the other half went to
sustainable transport, energy efficiency and
renewables technologies. Private R&I in energy
spending was EUR 45 m in 2020 (2021 data is not
available), mostly on sustainable transport and
energy efficiency. Venture capital investment in
clean energy technology start-ups and scale-ups
showed a strong increase in recent years, although
starting from a very low baseline: from EUR 0.1 m
in 2019 to EUR 7.6 in 2023 (
68
).
(
67
) JRC SETIS research and innovation data:
https://setis.ec.europa.eu/publications/setis-research-and-
innovation-data_en
(
68
) Source: JRC SETIS (2024)
47
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Table A7.1:
Key Energy Indicators
Hungary
2019
Import Dependency [%]
of Solid fossil fuels
of Oil and petroleum products
of Natural Gas
Dependency from Russian Fossil Fuels [%]
of Natural Gas
of Crude Oil
of Hard Coal
EU
2021
54.1%
38.5%
86.9%
67.2%
95.0%
56.9%
18.1%
2020
56.6%
43.7%
87.1%
75.6%
95.0%
58.8%
21.7%
2022
64.2%
41.5%
89.4%
99.1%
82.4%
84.1%
7.3%
2019
60.5%
43.3%
96.7%
89.7%
39.7%
28.8%
43.5%
2020
57.5%
35.8%
96.8%
83.6%
41.3%
26.7%
49.1%
2021
55.5%
37.3%
91.7%
83.6%
41.1%
26.4%
47.4%
2022
62.5%
45.8%
97.7%
97.6%
21.0%
19.5%
21.5%
ENERGY DEPENDNCE
69.7%
45.7%
86.6%
115.2%
95.0%
72.6%
9.7%
2016
Gas Consumption (in bcm)
Gas Consumption year-on-year change [%]
Gas Imports - by type (in bcm)
Gas imports - pipeline
Gas imports - LNG
Gas Imports - by main source supplier (in bcm) (1)
Russia
Not specified
10.0
5.9%
7.6
7.6
0.0
7.2
0.4
2017
10.7
7.0%
9.8
9.8
0.0
9.4
0.5
2018
10.3
-3.6%
7.7
7.7
0.0
7.4
0.4
2019
10.4
0.7%
11.7
11.7
0.0
11.1
0.6
2020
10.9
4.2%
7.9
7.9
0.0
7.5
0.4
2021
11.4
5.1%
7.5
7.5
0.0
7.1
0.4
2022
9.7
-14.9%
9.3
9.3
-
7.7
1.6
DIVERSIFICATION OF GAS SUPPLIES
2019
LNG Terminals - storage capacity m3 LNG
Number of LNG Terminals
LNG Storage capacity (m3 LNG)
Underground Storage
Number of storage facilities
Technical Capacity (bcm)
0
0
5
6.0
2020
0
0
5
6.2
2021
0
0
5
6.2
2022
0
0
5
6.0
2023
0
0
5
6.3
2016
Gross Electricity Production (GWh) (2)
Combustible Fuels
Nuclear
Hydro
Wind
Solar
Geothermal
Other Sources
Gross Electricity Production [%]
Combustible Fuels
Nuclear
Hydro
Wind
Solar
Geothermal
Other Sources
Net Imports of Electricity (GWh)
As a % of electricity available for final consumption
Electricity Interconnection [%]
Share of renewable energy consumption - by sector [%]
Electricity
Heating/cooling
Transport
Overall
31,902
14,583
16,054
259
684
244
0
78
45.7%
50.3%
0.8%
2.1%
0.8%
0.0%
0.2%
12,711
32.9%
-
7.3%
21.0%
7.8%
14.4%
2017
32,915
15,407
16,098
220
758
349
1
82
46.8%
48.9%
0.7%
2.3%
1.1%
0.0%
0.2%
12,878
32.1%
58.3%
7.5%
19.9%
7.7%
13.6%
2018
32,067
14,725
15,733
222
607
629
12
139
45.9%
49.1%
0.7%
1.9%
2.0%
0.0%
0.4%
14,348
35.1%
58.8%
8.3%
18.2%
7.7%
12.5%
2019
34,291
15,429
16,288
219
729
1,497
18
111
45.0%
47.5%
0.6%
2.1%
4.4%
0.1%
0.3%
12,584
30.4%
53.1%
10.0%
18.2%
8.1%
12.6%
2020
34,930
15,358
16,055
244
655
2,459
16
143
44.0%
46.0%
0.7%
1.9%
7.0%
0.0%
0.4%
11,677
28.2%
35.3%
11.9%
17.7%
11.6%
13.9%
2021
36,120
15,301
15,990
212
664
3,796
12
145
42.4%
44.3%
0.6%
1.8%
10.5%
0.0%
0.4%
12,754
29.1%
32.5%
13.7%
17.9%
6.2%
14.1%
2022
35,775
14,365
15,812
178
610
4,732
4
73
40.2%
44.2%
0.5%
1.7%
13.2%
0.0%
0.2%
12,152
28.2%
41.4%
15.3%
20.3%
7.8%
15.2%
2023
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
48.0%
-
-
-
-
ELECTRICITY/ENERGY
2019
VC investments in climate tech start-ups and scale-ups
(EUR Mln)
as a % of total VC investment (3) in Hungary start-ups
and scale-ups
Research & Innovation spending in Energy Union R&i priorites
Public R&I (EUR mln)
Public R&I (% GDP)
Private R&I (EUR mln)
Private R&I (% GDP)
0.09
0.0%
6.3
0.004%
43.9
0.030%
2020
0.65
0.4%
16.1
0.012%
45.0
0.033%
2021
1.51
1.7%
64.4
0.042%
-
-
2022
3.17
1.6%
-
-
-
-
2023
7.62
5.4%
-
-
-
-
(1) The ranking of the main suppliers is based on the latest available figures (for 2022)
(2) Venture Capital investment includes Venture Capital deals (all stages), Small M&A deals and Private Equity (PE) growth deals
(for companies that have previously been part of the portfolio of a VC investment firm or have received Angel or Seed funding).
Source:
Eurostat, Gas Infrastructure Europe, JRC elaboration based on PitchBook data (03/2024), JRC SETIS (2024)
CLEAN ENERGY
48
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ANNEX 8: FAIR TRANSITION TO CLIMATE NEUTRALITY
This Annex monitors Hungary’s progress in
ensuring a fair transition towards climate
neutrality and environmental sustainability,
particularly for workers and households in
vulnerable situations.
Hungary’s green economy
is relatively underdeveloped. Total jobs in the
environmental goods and services sector stood at
0.9% of total employment in 2021 (EU: 2.7%).
Between 2015 and 2022, the greenhouse gas
emissions intensity of Hungary’s workforce (see
Graph A8.1 and Table A8.1) declined from 12.4 to
10.5 tonnes per worker, below the EU average of
14.3 (
69
), indicating a positive trend in the green
transition. However, the progress made towards
the greening of Hungary’s economy has been slow,
and further policy-relevant research and analysis,
particularly of the labour market impacts of the
green transition, is needed. Investment in relevant
upskilling and reskilling should be increased,
especially for workers in declining and
transforming sectors, to ensure a fair green
transition in line with the Council Recommendation
on ensuring a fair transition towards climate
neutrality (
70
). The recovery and resilience plan
(RRP) outlines some measures in this regard,
complementing the territorial just transition plans
and actions supported by the European Social
Fund Plus (ESF+).
Graph A8.1:
Fair transition challenges in Hungary
HU Latest vs EU Latest
EU Latest
HU 2015 vs EU Latest
Greenhouse gas
emissions per worker
2.0
1.5
Employment in Hungary’s sectors that are
most affected by the green transition
remains stable.
In 2023, employment in
Hungary’s energy-intensive
industries comprised
4.9% of total employment (3.5% in the EU).
However, employment in mining and quarrying has
fallen by 28.4% since 2015 (to around 7 300
workers in 2023). The job vacancy rate in
construction (see Graph A8.2), a key sector for the
green transition, is relatively low (1.6% vs 3.6% in
EU in 2023). Nevertheless, 57% of small and
medium-sized enterprises (SMEs) in the sector
reported that skills shortages are holding them
back in general business activities (
71
). According to
the European Labour Authority (ELA) (
72
), labour
shortages were reported in 2023 for a number of
occupations that required specific skills or
knowledge for the green transition (
73
), including
roofers, insulation workers and civil engineering
labourers. Overall, vacancy rates in all
transforming sectors increased between 2015 and
2022, particularly in manufacturing, and could
hinder the transition towards climate neutrality. A
recent report from Eurofound also identified
labour shortages linked to the green transition in
the energy sector (
74
). This underlines the need to
ensure green jobs and skills are developed for a
successful and fair green transition . To this end,
Hungary allocated 5% (EUR 55 million) of its
available ESF+ funding to active labour market
measures and adult education over the 2021-
2027 period to increase green skills and jobs.
Upskilling and reskilling in declining and
transforming sectors requires further policy
measures,
and
supporting
low-skilled
workers remains crucial for a fair green
transition.
In energy-intensive industries,
workers’ participation in education and training
decreased from 9.5% in 2015 to 7.6% in 2023 (vs
10.9% in the EU). In Hungary, only 31% of SMEs
reported that the skills required for greening
(
71
) Eurobarometer on skills shortages, recruitment, and retention
strategies in small and medium-sized enterprises.
(
72
) Based on the European Labour Authority 2024 EURES Report
on labour shortages and surpluses 2023, i.e. data submitted
by the EURES National Coordination Offices.
(
73
) Skills and knowledge requirements are based on the
European Skills Competences and Occupations (ESCO)
taxonomy on skills for the green transition.
(
74
) Eurofound (2021), Tackling labour shortages in EU Member
States, Publications Office of the European Union,
Luxembourg.
Carbon inequality
1.0
0.5
0.0
Employment in
Energy-Intensive
Industries
Transport poverty
(proxy)
Education & training
in Energy-Intensive
Indsutries
Energy poverty
Source:
Eurostat, EU Labour Force Survey, EMPL-JRC GD-
AMEDI/AMEDI+ and DISCO(H) projects (see Table A8.1).
(
69
) Workforce-related calculations are based on the EU Labour
Force Survey. Note, in the 2023 country report for Hungary,
such indicators were calculated based on employment
statistics in the national accounts. This may result in limited
comparability across the two reports.
(
70
) Council Recommendation of June 2022 (2022/C 243/04)
covers employment, skills, tax-benefit and social protection
systems, essential services and housing.
49
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Table A8.1:
Key indicators for a fair transition in Hungary
Indicator
GHG per worker
Employment EII
Education & training EII
Energy poverty
Transport poverty (proxy)
Carbon inequality
Description
Greenhouse gas emissions per worker – CO
2
equivalent tonnes
Employment share in energy-intensive industries, including mining and quarrying (NACE B), chemicals (C20),
minerals (C23), metals (C24) and automotive (C29)
Adult participation in education and training (last 4 weeks) in energy-intensive industries
Share of the total population living in a household unable to keep its home adequately warm
Estimated share of the AROP population that spends over 6% of expenditure on fuels for personal transport
Ratio between the consumption footprint of the top 20% vs bottom 20% of the income distribution
HU 2015
12.4
5.3%
9.5%
9.6%
17.9%
1.9
HU
10.5 (2022)
4.9% (2023)
7.6% (2023)
4.7% (2022)
21.3% (2023)
1.9 (2021)
EU
14.3 (2022)
3.5% (2023)
10.9% (2023)
9.3% (2022)
37.1% (2023)
2.7 (2021)
Source:
Eurostat (env_ac_ainah_r2, lfsa_egan2d, ilc_mdes01), EU Labour Force Survey (break in time series in 2021), EMPL-JRC
GD-AMEDI/AMEDI+ and DISCO(H) projects.
business activities are becoming more important
(vs 42% in the EU) (
62
). If Hungary matches its
projected contribution to the EU’s 2030 renewable
energy target, between 600 and 1 400 additional
skilled workers will be needed for the deployment
of wind and solar energy, which may require an
investment in skills of EUR 1.7-2.2 million (
75
).
Hungary has committed to adopting a national
strategy for developing skills needed for a fair
green transition by the end of 2024 under the
RepowerEU chapter of its RRP. The RepowerEU
plan will also finance at least 50 000
professionals to participate in green skills training
courses by Q2-2026.
Graph A8.2:
Job vacancy rate in transforming
sectors and mining and quarrying
EU 2023
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
4.7% in 2022, but rose sharply to 8% in 2023 (
76
),
despite access to regulated prices for all gas and
electricity households consumers. Energy poverty
is particularly high in the least developed regions
(42% Észak-Alföld and 46% Dél-Dunántúl) and in
villages (65%). In 2022, energy poverty affected
10% of the population at risk of poverty (AROP)
(EU: 20.1%) and 4.3% of lower middle-income
households (deciles 4-5) (EU: 11.6%). In January
2023, 21.3% (vs 37.1% in the EU) of the
population at risk of poverty spent a considerable
proportion of their budget (more than 6%) on
private transport fuels (
77
).
High levels of air pollution are increasing
health risks in Hungary while environmental
inequalities remain an issue.
In 2021, the
average levels of air pollution stood above the EU
average (14.4 vs 11.4 µg/m
3
PM2.5), with critical
levels of air pollution (
78
) registered in each NUTS-
3 region of Hungary. This has led to a significant
impact on health, affecting vulnerable groups in
particular, and to around 10 400 premature
deaths annually (
79
). Meanwhile, the consumption
footprint of the richest 20% of the population was
1.9 times as high as the footprint of the poorest
20% in 2021 (vs 1.8 in the EU). For both groups,
the consumption footprint is highest for housing
and food (
80
).
HU 2023
HU 2015
1.0%
0.5%
0.0%
B
C
D
E
F
H
B - Mining and quarrying
C - Manufacturing
D - Electricity, gas, steam and air conditioning supply
E - Water supply; sewerage, waste management and
remediation activities
F - Construction
H - Transportation and storage
Source:
Eurostat jvs_a_rate_r2.
(
76
) According to reporting by the Hungarian Central Statistical
Office.
(
77
) Affordability of private transport fuels is one key dimension
of transport poverty. The indicator has been developed in the
context of the EMPL-JRC GD-AMEDI/AMEDI+ projects.
Methodology explained in
Economic and distributional effects
of higher energy prices on households in the EU.
(
78
) Two times higher than the recommendations in the WHO Air
Quality Guidelines (annual exposure of 5µg/m
3
).
(
79
)
EEA - Air Quality Health Risk Assessment
(
80
) Developed in the context of the EMPL-JRC DISCO(H) project.
Methodology explained in
Joint Research Centre,
2024. Carbon and environmental footprint inequality of
household consumption in the EU. JRC137520.
The EU
Energy poverty indicators deteriorated in
Hungary in 2023 due to persistent inflation
leading to a decline in real wages.
The share
of the population unable to keep their homes
adequately warm decreased from 9.6% in 2015 to
(
75
) EMPL-JRC AMEDI+ project.
50
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Hungary has started to implement measures
which could help it make progress towards
achieving a fair green transition.
Hungary’s
measures to boost employment and support
businesses as well as analyse and manage the
impact of climate change (based on the national
occupational safety and health policy) are
welcome (
81
). Also welcome is its commitment to
adopting a national strategy for green skills.
However, further action is needed to address the
existing challenges in education and the upskilling
of workers with an emphasis on green skills and
sectors. In addition, targeted efforts are needed to
intensify and align the country’s policies with the
environmental objectives, to support the most
affected and vulnerable groups, and to actively
involve social partners.
average refers to EU27 without Italy (household income data
not available for IT in the HBS)
(
81
) See monitoring review of the Council Recommendation of
June 2022, which took place in October 2023.
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PRODUCTIVITY
ANNEX 9: RESOURCE PRODUCTIVITY, EFFICIENCY AND CIRCULARITY
The green transition of industry and the built
environment, in particular decarbonisation,
resource efficiency and circularity, is
essential
to
boost
Hungary’s
competitiveness (
82
).
In this regard, priorities for
Hungary are waste management and the use of
circular materials in industry and construction.
Hungary’s circular economy transition is
insufficient to achieve the EU Circular
Economy Action Plan goals.
Hungary’s material
footprint was at the EU average in 2022 with
14.52 tonnes per capita. Waste production
increased to 1.8 tonnes per capita in 2020. The
construction, mining and energy sectors are the
main waste generators. The trends show that
Hungary is just at the beginning of its circular
economy transition. The 2022 Eco-Innovation
Scoreboard placed Hungary in the ‘catching-up
group’, with a score of 81.2. As of September
2023, Hungary totalled only 26 awarded EU
Ecolabel licences and 93 products with the EU
Ecolabel, showing a low but increasing take-up of
licences and products.
In 2019-2023, greenhouse gas emissions
from the sectors covered by the EU
emissions
trading
system
(ETS)
in
83
Hungary ( ) declined by 32%,
after a strong
increase in 2013-2019. In 2023, half of
greenhouse gases
emitted by Hungary’s ETS
installations came from power generation, a bit
below the EU average, 57%. Of the total emissions
from all industry sectors, the chemical industry
emitted almost one third, cement and lime
production about 15%, the metals industry 7%,
and other industries 48% (
84
). Between 2019 and
2023, the power sector registered a higher
emissions reduction (35%) (
85
) than the industry
sectors (28%). Between 2013 and 2023,
greenhouse gas emissions declined by 45% in
(
82
) See also Annexes 6, 7 and 12.
(
83
) This analysis excludes air travel. For more details and the
data sources, see Weitzel, M; van der Vorst, C. (2024),
Uneven progress in reducing emissions in the EU ETS, JRC
Science for policy brief, JRC138215, Joint Research Centre.
(
84
) Of the greenhouse gas emissions classified as coming from
the ‘other’ group, almost half originated from the
manufacture of refined petroleum products.
(
85
) This includes a steep decrease of 15% year-on-year in 2020,
and a gradual rebound in the next 2 years.
(
86
) Below the EU average of 2.45 PPS per kg.
(
87
) OECD (2018),
OECD Environmental Performance Reviews:
Hungary,
available at
this link.
(
88
) Above the EU average of 22.4%, available at
this link.
(
89
) European Environment Agency (2023), Water abstraction by
economic sector, 2000-2019, available at
this link.
(
90
) OECD (2023),
Towards a National Circular Economy Strategy
for Hungary,
OECD Publishing, Paris, available at
this link.
power generation but only by 5% in the industry
sectors, driven by the metals industry. This
resulted in a combined greenhouse gas reduction
of 30% in this period.
Graph A9.1:
ETS emissions by sector since 2013
20
1
0.8
0.6
15
10
0.4
5
0.2
0
2013
Cement & Lime
2014
2015
Chemicals
2016
Metals
2017
2018
Refineries
2019
2020
2021
Other
2022
2023
0
Power generation
Hungary (both axes)
Source:
European Commission
The transition to a circular economy is key to
improving the efficiency of the Hungarian
industry.
Although below the EU average, the
country has shown an increase in the use of
circular materials over the last few years, reaching
7.9% in 2022. A similar trend can be seen for
resource productivity, with 1.99 purchasing power
standards (PPS) per kilogram in 2022 (
86
), showing
an improvement in the Hungarian economy’s
ability to efficiently use material resources to
produce wealth. Most materials are used by the
construction and energy sectors (
87
). Hungary was
dependent on imports for 28.8% of materials used
in 2022 (
88
), making the country comparatively
more vulnerable to supply chain disruptions than
other countries. Energy production is, by far, the
most water-consuming economic activity in
Hungary (with more water abstraction than all
other economic sectors together) (
89
). Circular
economy measures in agrifood are insufficient.
Despite some progress, there is a need for a
strengthened policy framework, focusing on food
waste reduction, food waste and biomass use for
composting or energy valorisation, and the
development of the bioeconomy (
90
).
52
Emissions relative to 2013
Mt CO
2
e
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Table A9.1:
Circularity indicators
2018
Industry
Resource productivity (purchasing power standard (PPS) per kilogram)
Circular material use rate (%)
Eco-innovation index (2013=100)
Recycling of plastic packaging (%)
Cost of air emissions from industry (EUR bn)
Built environment
Recovery rate from construction and demolition waste (%)
Soil sealing index (base year = 2006)
Non-residential floor area (m per capita)
Waste backfilled (%)
2
2019
2020
2021
2022
2023
EU-27
Latest year
1.4
7.0
64.8
30.0
6.4
1.4
5.6
64.0
33.0
6.2
1.6
5.2
65.2
24.9
6.5
1.7
7.3
69.6
-
6.6
2.0
7.9
81.2
-
-
-
-
-
-
-
2.5
11.5
121.5
40.7
352.7
2022
2022
2022
2021
2021
99.0
103.4
11.6
6.7
-
-
11.7
-
98.0
-
11.9
88.1
98.3
-
-
-
-
-
-
50.9
-
-
-
-
89.0
103.4
18.0
9.9
2020
2018
2020
2020
Source:
Eurostat, European Environment Agency
Graph A9.2:
Treatment of municipal waste
500
400
381
387
403
416
406
300
200
100
0
2018
2019
2020
2021
2022
Waste treatment to be determined
Landfill/disposal
Total incineration (including energy recovery)
Composting and digestion
Material recycling
EU-27
municipal waste stood at 55,2% in 2022, far from
the target of a maximum of 10% by 2035 and
showing an increasing trend. The main challenges
for waste management include insufficient
collection and treatment capacity for some
specific streams such as packaging, biowaste and
textile. Significant reforms are ongoing in the
waste management sector, but their impacts are
still to be assessed.
Improving resource efficiency is essential for
the transition of the building sector in
Hungary.
Hungary’s building permits index
shows
an increasing trend in construction activities over
the last years, standing at 162.9 in 2023 (
94
). In
2020, Hungary submitted a long-term renovation
strategy aiming to decarbonise the building stock.
Construction and demolition waste per capita
remains well below the EU average. The proportion
of backfilling increased to 88.1% in 2020, well
above the EU average
of 9.9%. Hungary’s recovery
rate rapidly increased to 98.3% in 2021, achieving
the Waste Framework Directive’s target for 2020
of 70%. In 2021, 84% of the Hungarian population
was connected to at least secondary wastewater
treatment. Several urban areas in Hungary have
levels of arsenic, boron and fluoride in drinking
water that are above the EU parametric values,
which is a major public health issue.
Source:
Eurostat
Hungary’s
performance
in
waste
management is insufficient.
Municipal waste
generation is below the EU average, but some
generated waste might not be properly
reported (
91
). Hungary recycled 32.8% of municipal
waste in 2022 (
92
), while the plastic packaging
recycling rate stood at 24.9% in 2020, below the
EU average. Hungary missed the 2020 waste
targets and risks missing all the 2025 ones for
municipal waste and packaging (
93
). Landfilling of
(
91
) European Commission (2023),
The early warning report for
Hungary,
available at
this link.
(
92
) Below the EU average recycling rate of 48.6% for municipal
waste in 2022, available at
this link.
(
93
) Specifically for plastics and glass. European Environment
Agency (2023),
Many EU Member States not on track to
Kg per capita
meet recycling targets for municipal waste and packaging
waste,
available at
this link.
(
94
) with 2015 as base (2015=100).
Statistics | Eurostat
(europa.eu).
53
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ANNEX 10: DIGITAL TRANSFORMATION
Digital transformation is key to ensuring a
resilient and competitive economy.
In line with
the Digital Decade Policy Programme, and in
particular with the targets in that Programme for
digital transformation by 2030, this Annex
describes Hungary’s performance on digital skills,
digital
infrastructure/connectivity
and
the
digitalisation of businesses and public services.
Where relevant, it makes reference to progress on
implementing the Recovery and Resilience Plan
(RRP). Hungary allocates 29.1% of its total RRP
budget to digital (EUR 2.23 billion) (
95
). Under
Cohesion Policy, an additional EUR 2.5 billion (12%
of the country’s total Cohesion Policy funding) is
allocated
to
the
country’s
digital
transformation (
96
).
The Digital Decade Policy Programme sets
out a pathway for EU’s successful digital
transformation by 2030.
Hungary’s national
roadmap outlines the actions it intends to take to
reach the objectives and targets at national level.
The first Report on the State of the Digital Decade
highlighted the need to accelerate and deepen the
collective efforts to reach the EU-wide targets and
objectives (
97
). Among others, a digitally skilled
population increases the development and
adoption of digital technologies and leads to
productivity gains and new business models. It
also leads to higher inclusion and participation in
an environment increasingly shaped by the digital
transformation (
98
).
Digital
technologies,
infrastructure and tools all play a role in
addressing the current structural challenges,
including strategic dependencies, cybersecurity
and climate change.
(
95
) The share of financial allocations that contribute to digital
objectives has been calculated using Annex VII to the
Recovery and Resilience Facility Regulation.
(
96
) This amount includes all investment specifically aimed at or
substantially contributing to digital transformation in the
2021-2027 Cohesion Policy programming period. The source
funds are the European Regional Development Fund, the
Cohesion Fund, the European Social Fund Plus, and the Just
Transition Fund.
(
97
) European Commission (2023): Report on the State of the
Digital Decade 2023,
2023 Report on the state of the Digital
Decade | Shaping Europe’s
digital future (europa.eu).
(
98
) See for example OECD (2019): OECD Economic Outlook,
Digitalisation and productivity: A story of complementarities,
OECD Economic Outlook, Volume 2019 Issue 1 | OECD
iLibrary (oecd-ilibrary.org)
and OECD (2019): Going Digital:
Shaping Policies, Improving Lives
–
Summary,
https://www.oecd.org/digital/going-digital-
synthesis-summary.pdf.
Hungary has improved significantly and
scores slightly above the EU average in
terms of digital skills.
59% of the population
possesses at least basic digital skills, representing
a 10 percentage point increase in two years.
However, people who are above 55 years of age
lag behind the national average. The proportion of
specialists in information and communications
technology (ICT) in the Hungarian workforce has
increased slightly in recent years but remains
relatively low, at 4.2% compared to the EU
average of 4.8%. The Hungarian RRP and cohesion
policy programmes include several measures that
target digital skills (
99
).
Broadband connectivity remains above the
EU average and on 5G, Hungary has again
made considerable progress during the last
year.
Fixed very high capacity network (VHCN)
coverage went up from 80% in 2022 to 84% in
2023, above the EU average of 79%. 5G coverage
in Hungary increased to 84% in 2023 (up by 26
percentage points from the previous year).
However, it is still lower than the EU average,
which stands at 89%.
The digitalisation of businesses remains a
major challenge in Hungary.
Only 53% of SMEs
in Hungary had at least basic digital intensity in
2023 (compared with an EU average of 58%). The
use of advanced digital technologies, such as data
analytics, cloud or artificial intelligence (AI), has
improved significantly during the last year, as
already 66% of enterprises have taken up at least
one of these three technologies (compared to the
EU average of 55%). However, the use of AI is half
the EU average (4% in Hungary against 8% in the
EU). Further investments and large-scale, targeted
and effective measures are necessary to keep up
the pace of the digital transformation of
businesses, especially for SMEs, including the
development of digital skills in order to increase
SMEs’ use of digital technology and to develop
digital start-ups. In 2022, 2.6% of enterprises in
Hungary reported ICT service outage due to
cyberattacks (e.g. ransomware attacks, denial of
service attacks). Over the same year, 21.1% of
(
99
) The Digital Renewal Operational Programme Plus contains
digital skills measures worth up to EUR 400 million; the
Economic Development and Innovation Operational
Programme Plus contains measures in vocational education
and training investments.
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Table A10.1:Key
Digital Decade targets monitored by the Digital Economy and Society Index indicators
Digital Decade
target by 2030
(EU)
80%
2030
2022
Digital skills
At least basic digital skills
% individuals
Hungary
2023
49%
2021
2024
59%
2023
EU
2024
56%
2023
49%
2021
ICT specialists ( )
% individuals in employment aged 15-74
1
3.9%
2021
4.1%
2022
4.2%
2023
4.8%
2023
20 million
2030
Digital infrastructure/connectivity
Fixed very high capacity network (VHCN) coverage
% households
72%
2021
80%
2022
84%
2023
79%
2023
100%
2030
Fibre to the premises (FTTP) coverage ( )
% households
2
64%
2021
70%
2022
76%
2023
64%
2023
-
100%
2030
Overall 5G coverage
% populated areas
18%
2021
58%
2022
84%
2023
89%
2023
Digitalisation of businesses
SMEs with at least a basic level of digital intensity
% SMEs
34%
2021
NA
NA
21%
2021
53%
2023
58%
2023
90%
2030
Data analytics
% enterprises
NA
21%
2021
53%
2023
33%
2023
-
-
-
75%
2030
Cloud
% enterprises
37%
2023
39%
2023
Artificial intelligence
% enterprises
3%
2021
3%
2021
4%
2023
8%
2023
AI or cloud or data analytics (
3
)
% enterprises
NA
NA
66%
2023
55%
2023
Digitalisation of public services
Digital public services for citizens
Score (0 to 100)
64
2021
68
2022
73
2023
79
2023
100
2030
Digital public services for businesses
Score (0 to 100)
74
2021
76
2022
75
2023
85
2023
100
2030
Access to e-health records
Score (0 to 100)
NA
80
2022
86
2023
79
2023
100
2030
(1) The 20 million target represents about 10% of total employment.
(2) The fibre to the premises coverage indicator is included separately as its evolution will also be monitored separately and taken
into consideration when interpreting VHCN coverage data in the Digital Decade.
(3) At least 75% of EU enterprises have taken up one or more of the following, in line with their business operations: (i) cloud
computing services; (ii) big data; (iii) artificial intelligence.
Source:
Digital Economy and Society Index
enterprises developed or reviewed their ICT
security policy within the previous 12 months.
Hungary continued to progress on the
digitalisation of public services, but its
performance remains below the EU average,
mainly because of low scores on cross-border
services.
The use of national eID cards remains
limited, as most users prefer the client gate
trusted profile, which is a basic authentication
method using a login name and a password (
100
).
The Hungarian RRP includes several measures that
(
100
) In the fourth quarter of 2023, there were approximately 6.7
million national eID cards capable of e-identification in
Hungary (covering 67% of the population). At the end of
2022, the client gate trusted profile had 5.54 million active
profiles. In more than 97.75% of cases, the basic client gate
was used, while the national eID card was chosen by 1.5% of
users.
55
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focus on improving digitalisation in healthcare.
Regarding access to electronic health records,
Hungary has already a high score of 86 out of
100. The Digital Renewal Operational Programme
Plus also allocates EUR 2.042 billion to the
digitalisation of businesses and the public sector in
Hungary
–
supporting key EU initiatives (e.g. the
Digital Wallet, eIDAS and the interoperability
framework) and the UN Sustainable Development
Goals.
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ANNEX 11: INNOVATION
This Annex provides a general overview of
the performance of Hungary’s research and
innovation system,
which is essential for
delivering the transition and ensuring long-term
competitiveness.
Hungary is a ‘moderate innovator’ and the
gap between its performance and the EU
average is broadening.
According to the 2023
edition
of
the
European
Innovation
101
Scoreboard ( ), its innovation performance has
increased by 7.7 percentage points since 2016, at
a lower rate than the EU. Its overall performance
remained below the EU average (70.4% of the EU
performance) but has caught up slightly in recent
years (since 2020).
Low public spending on R&D undermines the
quality and performance of the science base,
thus hindering Hungary’s transition toward a
more knowledge-based economy.
Driven by the
private sector, with 1.39% of GDP in 2022,
Hungary’s total R&D spending
remained below the
EU average of 2.24% and the country’s 1,8%
target initially set for 2020 as well as the
ambitious 3% goal by 2030 (
102
). With the new
John von Neumann Programme (
103
), Hungary aims
to reinforce a knowledge-based economy and to
become one of the top innovators in Europe by
2030. However, low public R&D intensity (standing
at 0.38% of GDP in 2022) hampers the quality
and efficiency of the public R&I system. Following
a peak at 6.4% in 2019, the share of scientific
publications within the top 10% most cited
scientific publications worldwide dropped to 5.9%
in 2020 and remained below the EU average of
9.6%. A break in trend can also be observed in the
share of international co-publications as % of total
number of publications, with a decline from 52.4%
in 2021 to 50.9% in 2022 (compared to 55.5% for
the EU average) (
104
). A weak public research base
limits the scope for generating knowledge
spillovers that are needed to raise productivity and
remain competitive.
Graph A11.1:
R&D intensity in 2022
2.5
2
as % of GDP
1.5
1
0.5
0
R&D Intensity
Public expenditure
EU
HU
Private expenditure
Source:
Eurostat, 2023
(
101
) 2023 European Innovation Scoreboard (EIS), country profile:
Hungary
https://ec.europa.eu/assets/rtd/eis/2023/ec_rtd_eis-
country-profile-hu.pdf
The EIS provides a comparative
analysis of innovation performance in EU countries, including
the relative strengths and weaknesses of their national
innovation systems (also compared to the EU average).
(
102
)
https://nkfih.gov.hu/hivatalrol/strategia-alkotas/kutatasi-
fejlesztesi-innovacios-strategia.
(
103
)
https://kormany.hu/dokumentumtar/neumann-janos-program.
(
104
) Source: Science-Metrix.
Skill shortages remain a major challenge for
the Hungarian research and innovation
system, further exacerbated by deteriorating
conditions for researchers.
Against the EU
average of 43.1%, the share of population aged
25-34 who have successfully completed tertiary
education was 29.4% in 2023 and is one of the
lowest in the EU. Following a peak in 2020, the
number of new graduates in science and
engineering per thousand population aged 25-34
fell back from 17.6 to 9.1 in 2021, to a pre-2014
level and well below the EU average of 16.9. A
series of factors and recent developments are
creating uncertainty among the research
community and are severely affecting the
attractiveness of research careers. This includes
the low salaries for PhD students and researchers,
the change of the employment status of public
researchers from public servants to workers
directly covered by the labour code, and finally the
introduction of a performance-based funding
model of public research centres based on an
unclear evaluation system (
105
). In addition, the
differentiation of state-owned universities in
favour of institutions governed by public trust
funds when it comes to the allocation of public
funding affects the quality of scientific
excellence (
106
). Concerns over academic and
(
105
) In 2023 HUN-REN introduced a new indicator-based
evaluation system with retroactive performance
requirements for 2022 which set the financial allocations for
the research centres in 2024.
(
106
) While the non-model changed public universities receive
basic funding for maintenance and headcount, the model
changed institutions receive extra funding for example for
salaries or R&I activities from the government. with focus on
quantitative rather than qualitative output.
57
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scientific freedom also remain (
107
). (See also
Annex 15 on education.)
Hungary’s innovation capacity remains
limited to a small group of big foreign-owned
enterprises and some large domestic
companies.
The Hungarian economy largely relies
on high foreign direct investment (FDI) net
flows (
108
) of big companies that engage in
medium-high-tech and high-tech manufacturing. A
significant proportion of the small and medium
enterprises do not engage in innovation activities
or perceive a need to, while there is a high share
of non-innovators with a potential to innovate (
109
).
Businesses do not systematically seek out
public-private collaboration.
Public-private
relationship shows asymmetry when it comes to
cooperation between academia and businesses.
Public expenditure on R&D financed by business
enterprises (national) as % of total public
expenditure on R&D remains lower than the EU
average (2.89% in 2021, compared to 7.11%).
The very limited support for R&I in the
Hungarian recovery and resilience plan (RRP)
is a missed opportunity.
The Hungarian RRP
includes only one R&I-supporting measure, which
aims at creating national laboratories to foster
public-private collaboration around socio-economic
and environmental challenges. In light of the low
public expenditure for R&D in Hungary and the
challenges that hinder the country’s scientific and
innovation performance, full exploitation of the
ERDF would be important to provide stronger
support for such a strategic area, which is
essential to build a more resilient and competitive
economy.
(
107
) EC, Education and training monitor 2023.
(
108
) Source EIS Hungary country profile: 61% of GDP is
outstanding against the EU average of 2.1%.
(
109
) See EIS Hungary country profile: Non-innovators with
potential to innovate 39.6% against the EU average of
17.2%.
58
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Table A11.1:
Key innovation indicators
Hungary
Key indicators
R&D intensity (GERD as % of GDP)
Public expenditure on R&D as % of GDP
Business enterprise expenditure on R&D (BERD) as % of GDP
Quality of the R&I system
Scientific publications of the country within the top 10% most
cited publications worldwide as % of total publications of the
country
Patent Cooperation Treaty (PCT) patent applications per billion
GDP (in PPS)
Academia-business cooperation
Public-private scientific co-publications as % of total publications
2010
2015
2020
2021
2022
EU average
(1)
2.24
0.73
1.48
1.13
0.43
0.68
1.34
0.34
0.98
1.59
0.37
1.22
1.64
0.4
1.24
1.39
0.38
1
5.1
1.4
4.8
1.5
5.9
1.17
:
:
:
:
9.6
3.4
9.2
9.4
0.029
10.7
0.008
11.5
0.01
10.7
:
7.6
0.054
Public expenditure on R&D financed by business enterprise
0.057
(national) as % of GDP
Human capital and skills availability
New graduates in science & engineering per thousand pop. aged
7.2
25-34
Public support for business enterprise expenditure on R&D (BERD)
Total public sector support for BERD as % of GDP
0.265
R&D tax incentives: foregone revenues as % of GDP
0.163
Green innovation
Share of environment-related patents in total patent applications
12.1
filed under PCT (%)
Finance for innovation and economic renewal
Venture capital (market statistics) as % of GDP
0.01
Employment share of high growth enterprises measured in
:
employment (%)
10.7
0.353
0.148
12.9
0.039
20.69
17.6
0.238
0.038
8.3
0.08
:
9.1
0.26
0.035
:
0.089
:
:
:
:
0.074
16.9
0.204
0.104
14.7
0.085
12.51
Note:
EU average for the latest available year or the year with the largest number of country data.
Source:
Eurostat, OECD, DG JRC, Science-Metrix
(Scopus database and EPO’s Patent Statistical Database), Invest EU
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ANNEX 12: INDUSTRY AND SINGLE MARKET
Hungarian businesses continue to be
confronted by a tough economic climate
linked to high inflation, including high energy
prices.
The economy began to contract in 2022
amid high inflation, low business confidence and
declining investment. Producer prices continued to
increase more rapidly than in almost all other
Member States throughout 2023 (
110
). Because of
this environment, the confidence indicator in
industry remained considerably below the EU
average throughout 2023 (
111
), adversely affected
in particular by the decrease in orders in
manufacturing and the general price environment.
The energy crisis and tough economic climate have
had an impact on businesses and their
competitiveness, with a sizeable increase in the
rate of bankruptcies over the past 3 years. The
index of industrial producer prices on the domestic
market increased more in Hungary than in any
other Member State throughout 2022 and
2023 (
112
). According to a 2023 EIB Investment
Survey (
113
), firms in Hungary are more likely than
other EU Member States to have faced increases
in energy costs (97% vs 93%), with a larger
proportion facing increases of 25% or more (86%
vs 68%). The major concerns for firms in Hungary
are energy prices (91%) and uncertainty (83%).
Hungarian labour productivity is around two-
thirds of the EU weighted average.
Convergence of productivity with the EU, in terms
of both GDP per hour worked and total factor
productivity growth, began to re-emerge in 2017.
Over the past 5 years, Hungary has recorded the
fourth-highest growth in labour productivity and
the fifth-highest growth in total factor productivity
among the Member States that joined the EU after
2004. Real GDP per person employed increased by
2.8% in 2022 and by 0.5% in 2023. Gross value
added per person employed at constant prices
increased by 4.9% in 2022, above the EU average
of 3.6%.
Productivity varies significantly by sector
(Graph
A12.2), with industry and construction
lagging behind.
For industry, real labour
productivity per person increased by 0.5% in 2022
and decreased by 5.1% in 2023, well below the
EU average (-1.24%). This is most likely a
reflection of exposure to international markets,
with internationally oriented (large) firms
performing relatively well and domestic small and
medium-sized enterprises (SMEs) less so. This
difference points to the importance both of global
competition and of foreign direct investment
inflows for productivity.
Graph A12.1:
Total factor productivity
112
110
108
106
104
102
100
98
15
16
17
18
19
20
21
22
23
24
25
Slovakia
European Union
Czechia
Germany
Hungary
Source:
Commission AMECO database
Graph A12.2:
Labour productivity by sector (GDP
per person employed, 2015=100
150
140
130
120
110
100
90
80
70
2015
2016
2017
2018
2019
2020
2021
2022
2023
Industry (except construction)
Construction
Wholesale and retail trade, transport, accommodation and food service activities
Information and communication
Financial and insurance activities
Professional, scientific and technical activities; administrative and support service
activities
Source:
Eurostat national accounts
(
110
)
Statistics | Eurostat (europa.eu)
Producer prices in industry,
total
–
quarterly data.
(
111
)
Statistics | Eurostat (europa.eu)
Industrial confidence
indicator.
(
112
)
Industrial producer prices down by 0.3% in the euro area and
by 0.2% in the EU
–
Eurostat (europa.eu)
(
113
)
EIB Investment Survey 2023
–
Hungary overview
Hungarian SMEs face some difficult financing
conditions,
according to the 2023 Survey on the
Access to Finance of Enterprises (SAFE) (
114
).
Access to public financial support is below the EU
average, and
–
with a high number of SMEs in the
(
114
)
Data and surveys
–
SAFE (europa.eu)
60
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economy
–
this can be a considerable constraint to
the scaling up and growth of these companies.
In light of demographic ageing and a
declining fertility rate, Hungary’s economic
development relies on the capacity to
remove obstacles to sustainable productivity
growth.
While part of the productivity slowdown
reflects increasing labour shortages (with low-
productivity workers included in the labour force),
structural weaknesses remain significant. A
comprehensive SME strategy, particularly one
focused on digitalisation and digital skills, could
benefit the country, accompanied by addressing
weaknesses in the business environment. The
2022 European Innovation Scoreboard shows
Hungary is among the innovation laggards, with
performance relative to the EU decreasing over
time (see also Annex 11). Innovation and R&D by
business is low.
A major contributory factor to future
Hungarian competitiveness is the quality of
its Human Capital. Students’ socio-economic
background remains a strong predictor of
their performance
according to the latest, 2022
“Programme
for
International
Student
Assessment”
(PISA) study published by the OECD.
The study reveals that 3 out of 10 Hungarian
students in mathematics and 1 in 4 students in
reading and science do not meet the basic
proficiency levels in these areas, with the
achievement gap by socio-economic status being
also larger than in other EU countries. More than
half of students (54.9% vs EU average 48.0%)
from the bottom quarter of the socio-economic
status underachieve in mathematics, a share that
increased by 6.7 percentage points between 2018
and 2022 (see annex 15 for more detail).
The business environment and general
economic
environment
are
affecting
Hungarian competitiveness.
Business entry
rates are relatively low in Hungary and
bankruptcies have been high throughout 2022 and
2023. Regulation, ad hoc taxes and an uncertain
business environment limit market entry,
competition and ultimately innovation in several
sectors of the economy. The government’s policy
of pushing non-domestic companies out of the
Hungarian market can have important implications
for innovation and productivity and can negatively
impact on cohesion policy support for SMEs. In
recent years there have been interferences in
markets, weakening the business environment.
These have the potential to discourage or limit EU
and foreign investment, in effect enabling
purchases of companies by (less efficient) state-
owned enterprises or private firms with ties to the
government.
Certain
firms
and
industries
face
discriminatory treatment through tailor-
made taxes, price caps and regulations
imposed at short notice and without prior
consultation.
Examples include price caps and
profit taxes on the production of cement and
ceramic materials, together with increased tax on
insurance and pharmaceutical companies. For
several years the government has used its
extraordinary power under the ‘state of danger’ to
introduce such measures. The ‘state of emergency’
continues to be extended and will also continue in
2024. The retail sector faces specific regulations
that hinder development. Conditions for
authorising the establishment of or changes to
shops above 400m
2
are not transparent. The tax
on the retail sector disproportionately burdens
larger companies that are typically foreign owned.
Legislation forbids European operators from
adopting a franchised structure (common among
larger Hungarian retail operators) if restructuring
occurs for economic reasons (e.g. to lower the tax
burden).
The government frequently uses its power to
exempt transactions from merger control.
The impact of such transactions on the economy,
competition and the single market is therefore not
assessed. The criteria for these exemptions are not
clear, and there is no formal procedure to contest
them or the decision itself.
State or state-friendly domestic ownership
has increased
in banking, telecommunications,
utilities, media, TV and radio broadcasting, to the
detriment of foreign ownership. Government
announcements suggest similar transactions can
be expected in insurance, retail and the transport
sector. The decreased presence of foreign capital
and know-how in high value-added industries like
banking and telecommunications risks curbing
Hungary’s opportunities for productivity growth
and innovation.
In some sectors, product market regulations
create barriers to competition and market
entry.
State ownership is prevalent in these
sectors and is on the increase. Hungary has the
highest number of regulated professions in the EU,
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with professions like tourist guides, patent
trademark agents and transport workers having
levels of restrictiveness above the EU average.
Hungary’s REPowerEU chapter
represents an
ambitious package of measures to help
address significant energy challenges that
Hungary is currently facing in order to
increase its energy savings and renewable
potential.
Large parts of the reforms focus on
improving the electricity system. These include
setting up dynamic pricing in the retail electricity
market, incentivising the uptake of electricity
storage, and increasing the number of consumers
that use smart meters. The plan includes an
ambitious target for connecting power plants to
the grid based on renewable energy sources. Other
reforms include a strategy for biogas and
biomethane with a biomethane action plan, and a
national strategy on skills for the green transition.
The digitalisation of businesses remains a
major challenge in Hungary. Most businesses,
in particular SMEs, are not yet maximising
the opportunities offered by digital
technologies.
This
affects
the
competitiveness of the economy.
The 2023
Digital Economy and Society Index indicates
performances below the EU average and
objectives in several dimensions. Hungary
performs best on broadband connectivity and
worst on the integration of digital technology in
firms’ activities. According to the index, only 52%
of SMEs have at least a basic level of digital
intensity, compared with 69% for the EU (
115
). Use
of electronic information sharing and e-invoicing is
far below the EU average.
Hungary is an open economy, highly
integrated into the single market and heavily
reliant on EU sources.
In 2023, 27.3% of value
added was sourced from the rest of the EU
compared to an EU average of 19.7%. The Single
Market Scoreboard indicates that Hungary
experienced a significant improvement in
transposing EU law from 2022 to 2023. The
transposition deficit was 0.2% at the end of 2023
(EU average 0.7%), compared with 1.5% in 2022.
However, the transposition delay in overdue
directives and the conformity deficit are both
(
115
) For a more complete analysis see Annex 10 on Digital
Transformation.
significantly above the EU average. There are 41
ongoing infringement procedures, significantly
above the EU average of 26 (
116
). The Hungarian
SOLVIT center handled 10% of the cases
submitted to SOLVIT network in 2023. Hungary
solved 75% of SOLVIT cases (21) it handled as
lead centre, below the EU average of 88.3%. The
caseload of the Hungarian SOLVIT as home centre
is the second highest among Member States .
Hungary does not actively participate in EU tools
such as the Single Market Enforcement Taskforce,
which is designed to improve the functioning of
the single market.
Hungary is implementing several measures
to improve the competition in public
procurement.
The proportion of contracts
awarded in procedures where there was just one
bidder decreased from 33% in 2022 to 32% in
2023 but is stillabove the EU average (27%) (
117
).
The commitments Hungary has undertaken under
its Recovery and Resilience Plan (RRP) aim to
improve the transparency and efficiency of public
procurement and to address the lack of
competition in the short, medium and long term.
Hungary has reported to have set up a single bid
reporting tool, a performance measurement
framework, developed a publicly available function
allowing the structured search and bulk export of
contract award notice data, and adopted an action
plan on public procurement. In March 2022,
guidance was published on best practices to avoid
single bid public procurements.
The gathering of data by the newly created
Integrity Authority and the reporting
obligation on market concentration in public
procurement can help identify the root
causes behind the lack of competition on the
public procurement market.
The recently
adopted Construction Law raises concerns in terms
of public procurement procedures in the sector.
The scope and practical implementation of its
provisions are unclear, and the application of the
law could disconnect the project from local needs.
This may cause bottlenecks in the procurement
process, resulting in project implementation delays
and affecting both the RRP and cohesion policy.
The government promotes the use of public
(
116
) Single Market Scoreboard 2023.
(
117
)
The Single Market and Competitiveness Scoreboard | Single
Market Scoreboard (europa.eu)
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procurement as a strategic tool to achieve
sustainable goals, and the Hungarian regulatory
framework for public procurement provides a good
foundation for this. However, the uptake of
sustainable procurement by contracting authorities
is moderate. Further operational support is needed
to help them implement green, social and
innovative public procurement. A green public
procurement strategy was adopted in December
2022, focusing on the development and
dissemination of methodologies and tools that
support contracting authorities with the uptake of
strategic public procurement. However, it has not
yet been adopted.
Implementing the Single Digital Gateway
Regulation will improve online access to
information, administrative procedures and
assistance within the EU. Hungary is in the
intermediate
stage
implementing
the
components needed to connect to the Once-
Only’ Technical System (OOTS).
The system will
enable the automated cross-border exchange of
evidence
between
competent
authorities,
improving online access to information,
administrative procedures and assistance within
the EU. The onboarding of Hungarian authorities is
crucial for the system to function smoothly and to
reduce administrative burden. Hungary lacks a
pre-notified or notified eIDAS eID scheme.
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Table A12.1:Industry
and the Single Market
Hungary
POLICY AREA
INDICATOR NAME
2019
2020
6.7
2.4
-3.9
-0.5
2021
7.5
2.2
4.2
2.3
2022
8.5
1.1
0.5
2.8
2023
6.4
0.5
-5.1
26.7
EU27
average*
3.8
1.2
-1.24
9.83
HEADLINE INDICATORS
Net Private investment, level of private capital stock,
8.6
net of depreciation, % GDP
1
Net Public investment, level of public capital stock,
2.6
Economic Structure
net of depreciation, % GDP
1
Real labour productivity per person in industry (%
2.3
yoy)
2
Cost competitiveness
Nominal unit labour cost in industry (% yoy)
2
Single Market
integration
2.9
Compliance
SINGLE MARKET
EU Trade integration, % (Average intra-EU imports +
59.5
average intra EU exports)/GDP
2
Transposition deficit, % of all directives not
0.5
transposed
3
Conformity deficit, % of all directives transposed
1.5
incorrectly
3
SOLVIT, % resolution rate per country
3
Number of pending infringement proceedings
3
89.3
29
0.05
40
6
57.5
1
1.6
95.0
36
0.05
39
6
58.0
0.7
1.8
91.2
32
0.05
40
5
66.8
1.5
1.9
93.5
30
0.05
33
5
56.5
0.2
2.3
75.0
41
0.05
32
4
42.9
0.7
1.1
88.3
25.9
0.05
28.6
8.1
Restrictions
Public procurement
EEA Services Trade Restrictiveness Index
4
Single bids, % of total contractors
3
Direct Awards, %
3
Shortages
Strategic
dependencies
ECONOMIC STRUCTURE
Material Shortage (industry), firms facing constraints,
9.3
%
5
Labour Shortage using survey data (industry), firms
58.5
facing constraints, %
5
Vacancy rate, % of vacant posts to all available ones
2.45
(vacant + occupied)
2
Concentration in selected raw materials, Import
concentration index based on a basket of critical raw
0.18
materials
6
Installed renewables electricity capacity, % of total
0.0
electricity produced
2
BUSINESS ENVIRONMENT - SMEs
Impact of regulation on long-term investment, % of
firms reporting business regulation as major obstacle
7
Bankruptcies, Index (2015=100)
2
Business registrations, Index (2015=100)
2
Payment gap - corporates B2B, difference in days
between offered and actual payment
8
Payment gap - public sector, difference in days
between offered and actual payment
8
Share of SMEs experiencing late payments in past 6
months, %
9
EIF Access to finance index - Loan, Composite: SME
external financing over last 6 months, index values
between 0 and 1
10
EIF Access to finance index - Equity, Composite:
VC/GDP, IPO/GDP, SMEs using equity, index values
between 0 and 1
10
9.2
-
-
-
-
50.9
0.31
8.8
24.4
1.8
0.2
0.0
23.4
38.5
2.3
0.2
0.2
22.2
39.0
2.7
0.21
0.3
10.8
28.6
2.3
0.21
17.2
23.3
2.5
0.22
50
Investment obstacles
Business
demography
10.8
-
-
18
19
43.9
0.28
7.6
43.9
166.7
12
9
34.6
0.13
7.0
81.2
165.2
11
14
40.6
0.27
11.0
209.8
145.0
15
14
43.6
-
22.2
105.6
120.2
15
16
48.7
0.49
Late payments
Access to finance
0.12
0.13
0.06
0.08
-
0.17
Source:
(1) AMECO, (2) Eurostat, (3) Single Market Scoreboard, (4) OECD, (5) ECFIN BCS, (6) COMEXT and Commission
calculations, (7) EIB Investment Survey, (8) Intrum Payment Report, (9) SAFE survey, (10) EIF SME Access to Finance Index.
* Own Commission calculations for the EU27 average
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ANNEX 13: PUBLIC ADMINISTRATION
Hungary’s public administration
is essential
for the economy’s competitiveness by, in
particular, shaping the conditions for the
twin transitions and creating a favourable
business environment.
Overall, the perception of
government effectiveness in Hungary has
improved; however, it remains below the EU
average (
118
). Coordination in government is
characterised by strong centralisation around the
Prime Minister, particularly in decision-making and
policy implementation. The recovery and resilience
plan (RRP) aims to improve judicial independence
and the quality of legislation through stakeholder
engagement and consultation. However, the
extensive use of emergency procedures in law-
making limits the potential of public consultations.
Hungary has a relatively young civil service.
The ratio of staff aged 49 or below to those aged
50 or above is higher than the EU average.
However, the share of employees with higher
education is relatively low unlike the participation
of civil servants in adult learning (Table A13.1).
Gender parity in senior civil service positions is the
lowest in the EU (Graph A13.1). Civil service rules
are rather fragmented, with an increasing number
of sectors operating under their own separate
human
resource
regulatory
frameworks.
Recruitment rules are opaque, and there were
arbitrary layoffs in 2023 in the public
administration (
119
). There was action taken in
2023 aimed at reducing the political, financial and
administrative autonomy of local government (
120
).
Hungary has a low ranking on selected fiscal
framework indicators.
Its performance on the
national medium-term budgetary framework and
the strength of its fiscal rules’ indices are below
the EU average. This is partly because the targets
set in the medium-term budget plans can be
revised quite often, and the reduced role of the
Parliament and of the fiscal council in the adoption
and preparation of medium-term plans. Moreover,
not all fiscal rules have real-time monitoring or set
measures in case of deviation. Furthermore,
Hungary’s independent fiscal institution has a
narrower scope of activity than that of the EU
average, with room for further development,
particularly in terms of
ex post
evaluation of
macroeconomic forecasts (Graph A13.2).
Graph A13.1:
Share of women and men in
management positions
Senior
Level 2
Level 1
administrators administrators administrators
EU-27
HU
EU-27
HU
EU-27
HU
0
10 20 30 40 50 60 70 80 90 100
Men
Women
Source:
European Institute for Gender Equality (2023 data)
Graph A13.2:
Scope index of independent fiscal
institutions
35
30
25
20
15
10
5
0
HU
EU-27
60
58
56
54
52
50
48
Monitoring
compliance
Macro forecast
Budget forecast
Sustainability
assessment
Fiscal
transparency
Normative
assessments
Total
Total
(rhs)
Source:
European Commission (2022 data)
Subcomponents
Fast-track regulatory governance processes
can reduce Parliament’s consultation with
stakeholders.
Emergency procedures that deviate
from the standard legislative process were
initiated during the COVID-19 pandemic. They
were then extended at the beginning
of Russia’s
full-scale invasion of Ukraine and further extended
in 2023 (
121
). Emergency procedures eliminate the
possibility of having effective stakeholder
consultation before legislation is voted on (
122
). Ex
(
121
) Government decree 515/2023 (XI. 22.).
(
122
) European Commission, Public administration and governance:
Hungary, Publications Office of the EU, 2023 (forthcoming).
(
118
) Worldwide Governance Indicators, 2022.
( ) EUPACK report 2023.
119
(
120
) EUPACK report 2023.
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Table A13.1:Public
administration indicators
HU Indicator (
1
)
E-government and open government data
1
2019
2020
2021
2022
2023
EU-27(
2
)
Share of internet users within the last year that used a public
authority website or app
n/a
n/a
0.3
n/a
63.3
0.3
n/a
66.2
0.6
81.0
68.1
0.7
82.4
72.8
0.8
75.0
75.8
0.8
2
E-government benchmark overall score (
3
)
3
Open data and portal maturity index
Educational attainment level, adult learning, gender parity and ageing
4
5
Share of public administration employees with higher education
(levels 5-8, %)
Participation rate of public administration employees in adult
learning (%)
38.8
41.2
45.4 (b)
46.6
45.4
52.9
11.0
64.2
2.4
10.6
63.4
2.2
8.3 (b)
62.6
2.1 (b)
20.1
57.4
2.1
23.2
62.2
1.9
17.9
9.2
1.5
6
Gender parity in senior civil service positions (
4
)
7
Ratio of 25-49 to 50-64 year olds in NACE sector O
Public financial management
8
Medium-term budgetary framework index
9
Strength of fiscal rules index
0.6
0.7
0.6
0.7
0.6
0.7
0.6
0.7
n/a
n/a
0.7
1.4
Evidence-based policy making
10
Regulatory governance
n/a
n/a
1.28
n/a
n/a
1.7
(
1
) High values denote a good performance, except for indicator # 6. (
2
) 2023 value. If unavailable, the latest value available is
shown. (
3
) Measures the user centricity and transparency of digital public services as well as the existence of key enablers for the
provision of those services. (
4
) Defined as the absolute value of the difference between the percentage of men and women in
senior civil service positions.
Flags: (b) break in time series; (d) definition differs; (u) low reliability.
Source:
E-government activities of individuals via websites, Eurostat (# 1); E-government benchmark report (# 2); Open data
maturity report (# 3); Labour Force Survey, Eurostat (# 4, 5, 7); European Institute for Gender Equality (# 6); Fiscal Governance
Database (# 8, 9); OECD Indicators of Regulatory Policy and Governance (# 10).
ante regulatory impact assessments and ex post
legislative evaluations are also limited in practice
by the extensive use of the emergency procedures.
The RRP includes measures to improve the quality
of law-making, including impact assessments, to
support the effective involvement of stakeholders
and make public information more transparent.
However, new legislation on the social consultation
process significantly limits civil society’s right to
policy consultation (
123
).
There is room to improve the digitalisation of
public services
(Table A13.1 and Annex 10). The
share of e-government users is above the EU
average unlike the e-government
benchmark’s
overall index, which measures the development of
e-government services.
The justice system performs efficiently while
there are concerns about the level of
remuneration of judges and court staff
(
124
).
The estimated time needed to resolve litigious civil
and commercial cases at first instance is low (134
days in 2022). Hungary scores the third highest in
the EU on the estimated time to resolve
administrative cases at first instance. The quality
of the justice system is good overall. The level of
digitalisation is very advanced. However, there are
concerns about the level of remuneration for
judges and court staff. Specific arrangements for
access to justice to people at risk of discrimination,
older people and victims of domestic violence
could also be improved. The Commission is
monitoring implementation of the recent reform
seeking to strengthen judicial independence.
(
123
) Government decree 146/2023 on the establishment of
administrative procedural rules regarding the operation of
organisations during the state of emergency.
(
124
) For more details, see the 2024
EU Justice Scoreboard
and
the Commission’s 2024
Rule of Law Report
(forthcoming).
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FAIRNESS
ANNEX 14: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF
THE EUROPEAN PILLAR OF SOCIAL RIGHTS
The European Pillar of Social Rights is the
compass for upward convergence towards
better working and living conditions in the
EU.
This Annex provides an overview of Hungary’s
progress in implementing the Pillar’s 20 principles
and the EU headline and national targets for 2030
on employment, skills and poverty reduction.
Table A14.1:Social
Scoreboard for Hungary
Policy area
Headline indicator
Adult participation in learning (during the last 12 months, excl. guided on
the job training, % of the population aged 25-64, 2022)
Early leavers from education and training
(% of the population aged 18-24, 2023)
Equal opportunities and
access to the labour market
Share of individuals who have basic or above basic overall digital skills
(% of the population aged 16-74, 2023)
Young people not in employment, education or training
(% of the population aged 15-29, 2023)
Gender employment gap
(percentage points, population aged 20-64, 2023)
Income quintile ratio
(S80/S20, 2022)
Employment rate
(% of the population aged 20-64, 2023)
Dynamic labour markets
and fair working conditions
Unemployment rate
(% of the active population aged 15-74, 2023)
Long term unemployment
(% of the active population aged 15-74, 2023)
Gross disposable household income (GDHI) per capita growth
(index, 2008=100, 2022)
At risk of poverty or social exclusion (AROPE) rate
(% of the total population, 2022)
At risk of poverty or social exclusion (AROPE) rate for children
(% of the population aged 0-17, 2022)
Impact of social transfers (other than pensions) on poverty reduction
(% reduction of AROP, 2022)
Social protection and
inclusion
Disability employment gap
(percentage points, population aged 20-64, 2022)
Housing cost overburden
(% of the total population, 2022)
Children aged less than 3 years in formal childcare
(% of the under 3-years-old population, 2022)
Self-reported unmet need for medical care
(% of the population aged 16+, 2022)
Critical situation
To watch
Weak but
improving
Good but to
monitor
On average
Better than average
Best performers
62.2
11.6
58.9
10.9
9.2
4.0
80.7
4.1
1.4
147.0
18.4
18.1
36.65
32.4
8.1
12.9
1.4
respectively) than for the general population. The
disability employment gap was among the highest
in the EU in 2022, at 32.4 percentage points (pps)
and remains high, at 29.6 pps in 2023. Women’s
labour market situation presents a mixed picture.
While the gender employment gap decreased to
9.2 pps in 2023 (vs 10.2 pps in the EU), the gender
pay gap was among the highest in the EU in 2022
(at 17.3%). The combination of the limited labour
market integration of various groups and labour
shortages (2.4% vs. 2.7% in the EU) undermines
Hungary’s
potential to improve its economic
competitiveness. Addressing the needs of these
groups, including through skills development and
effective active labour market measures, will be
key to reaching Hungary’s employment rate target
of 85% by 2030.
Persistent inequalities in education and
training have a negative effect on the
employability of disadvantaged groups.
The
Hungarian education system is characterised by a
low share of children under 3 years of age
participating in formal childcare (12.9% vs 35.7%
in the EU in 2022), which later impacts educational
outcomes and life prospects for many
disadvantaged children. The share increased
significantly in 2023 (to 20.3%) but is expected to
remain significantly below the EU average.
Hungary also continues to have a high early school
leaving rate (11.6% vs 9.5% in the EU in 2023),
despite a recent decrease. The rate is significantly
higher among pupils in Northern Hungary and rural
areas, as well as among those with disabilities, the
socio-economically disadvantaged and Roma (see
Annex 13). Early school leaving is often associated
with a low level of basic skills, which affects
around a quarter of 15-year-olds in Hungary (PISA
2022). Overall, the rate of young people (15-29)
not in employment, education or training (NEETs)
hovers around the EU average (10.9% vs 11.2% in
the EU in 2023). However, around one in five
women between the ages of 15 and 29 and with a
low level of education or living in a rural area, and
40.4% of Roma (in 2022), are NEET. Hungary
allocated EUR 447 million from the European
Social Fund Plus (ESF+) to implement the
Reinforced Youth Guarantee, which should make a
significant contribution to addressing the needs of
the more vulnerable people. Furthermore, the ESF+
supports measures to increase the attractiveness
of the teaching profession and to provide
(1) Update of 27 October 2023. Members States are
categorised based on the Social Scoreboard according to a
methodology agreed with the EMCO and SPC Committees.
Please consult the Annex of the
Joint Employment Report
2024
for details on the methodology.
Source:
Eurostat
Hungary’s labour market performance
continues to be generally favourable, but
some vulnerable groups still face significant
barriers in an overall tight labour market.
In
2023, the unemployment rate (aged 15-74) ticked
up but remained well below the EU average (4.1%
vs 6.1%). At the same time, the employment rate
(aged 20-64) continued to increase to 80.7% (vs
75.3% in the EU), although with signs of slowing
down, as the main labour reserves have been
gradually depleting, leading to significant labour
shortages. Some vulnerable groups, such as the
low-skilled, Roma and persons with disabilities,
continue nonetheless to have limited access to the
labour market. Their unemployment rates were
substantially higher (11.6%, 20% and 9.5%
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educational support in schools and vocational
education and training institutions with high drop-
out rates.
The positive momentum in relation to digital
skills should be maintained to ensure a fair
digital transition.
The share of 16-74-year-olds
with at least basic digital skills significantly
increased to 58.9% in 2023 (vs 49% in 2021),
thereby surpassing the EU average of 55.5%.
However, adults with a low level of education,
those aged 55 and above, and unemployed people
are still lagging behind, and only about a quarter
of those who belong at least two of these groups
have at least basic digital skills. Greater efforts
are needed to close the digital skills gap,
especially among these vulnerable groups. These
efforts include upskilling measures aimed at
ensuring equal access to digital public services,
and better opportunities in the labour market.
Investments using ESF+ funding to support more
than 150 000 adults without or with few digital
skills, including vulnerable groups, to acquire at
least basic overall digital skills by 2029 are a
positive step in this regard.
Despite surpassing the 2030 adult learning
target in 2022, the training programmes
available in Hungary often do not reach the
people who need them most.
Adult participation
in learning in the previous 12 months increased to
62.2% in 2022, thereby exceeding the EU average
and Hungary’s national skills target of 60%.
However, people with a low level of education, the
unemployed and those outside the labour force
tend to participate in learning significantly less
than the average (42.3%, 20.7%, 18.6%,
respectively). (
125
) An overall strategic framework
for adult learning with a stable source of funding
(and up-to-date information about learning
opportunities), and upskilling actions targeting
vulnerable groups, including in public employment
services could help increase the labour supply and
productivity by improving people’s long-term
employability.
High inflation recently disrupted the positive
trend of a reduction in poverty, and
aggravated the situation of the most
vulnerable people.
The share of people at risk of
(
125
) Data used here exclude guided on-the-job training (see
public excel file), except for the unemployed and those
outside the labour force.
poverty or social exclusion (AROPE) fell in 2022
(by 1 pps to 18.4%, vs 21.6% in the EU), as did its
component of severe material and social
deprivation (SMSD), by 1.1 pps to 9.1% (vs 6.7% in
the EU). However, 2023 data point to a renewed
deterioration in the situation, with the AROPE rate
standing at 19.7% and the SMSD rate at 10.4%.
The SMSD rate was particularly high among
children (12.0% vs 8.4% in the EU in 2022, rising
sharply to 15.1% in 2023) and Roma (51.0% in
2023). Persons with disabilities are particularly
affected, with a gap in the AROPE rate well above
the EU average (15.4 pps vs 10.5 pps in 2022) and
a rising trend in 2023.
There are significant gaps in the social
protection system.
While inflation fell by the end
of 2023, Hungary’s recent annual averages were
the highest in the EU (14.5% in 2022 and 17.6%
in 2023). At the same time, the nominal amount of
the minimum income benefit has not increased
since 2010. As a result, its real value has halved
since then, and its adequacy was one of the lowest
in the EU in 2021 (18.9% of the poverty threshold
vs 59% in the EU). Overall, government
expenditure on social protection was one of the
lowest in the EU (13.1% of GDP in 2021 vs 20.4%
in the EU). The impact of social transfers on
poverty reduction was slightly above the EU
average (36.7% vs 35%) in 2022 and fell to
34.5% in 2023. The housing cost overburden rate
rose sharply from 2.4% in 2021 to 8.7% in 2023,
increasing the high cost of living for many lower
income households. On access to services, the
public long-term care (LTC) system suffers from a
high rate of unmet needs, with LTC spending and
the number of formal LTC workers below the EU
average. Further social policy efforts are needed
for Hungary to meet its national target of reducing
the material and social deprivation rate of families
with children to 13%, thereby reducing the number
of people at risk of poverty or social exclusion by
292 000 by 2030. The available quantitative and
qualitative evidence and the policy response
undertaken and planned analysed in the second-
stage analysis of the Social Convergence
Framework of May 2024
(SWD(2024)132)
point to
challenges mainly related to vulnerable groups’
education, skills and labour market participation as
well as to the adequacy of social protection but do
not point to major social convergence challenges
for Hungary overall, in light of the positive
developments recorded, especially in the areas of
employment and skills.
68
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Table A14.2:Situation
of Hungary on 2030
employment, skills and poverty reduction targets
Indicators
Employment (%)
Adult learning
1
(%)
Poverty reduction
2, 3
(thousands)
Latest data
80.7
(2023)
62.2
(2022)
-51
(2023)
Trend
(2016-2023)
2030
target
85
60
-292
EU
target
78
60
-15 000
(1) Adult Education Survey, adults in learning in the past 12
months,
special extraction excl. guided on-the-job training
(2) Change in the number of persons at risk of poverty or
social exclusion (AROPE), reference year 2019.
(3) Hungary expresses its national target as a reduction of the
material and social deprivation rate of families with children
to 13% and thereby a reduction of the number of people
AROPE by 292 000.
Source:
Eurostat, DG EMPL
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ANNEX 15: EDUCATION AND TRAINING
This Annex outlines the main challenges of
Hungary’s education and training system
based on the 2023 Education and Training Monitor
and the 2022 OECD Programme for International
Student Assessment (PISA) results.
Basic skills, as measured by PISA 2022, are
around the EU average, but students’ socio-
economic background is a strong predictor of
their performance.
Some 3 in 10 Hungarian
students in mathematics, and 1 in 4 students in
reading and science, do not meet the basic
proficiency levels in these areas, above the EU
target. The achievement gap by socio-economic
status is larger than in other EU countries. More
than half of students (54.9% v EU average 48.0%)
from the bottom quarter of the socio-economic
distribution underachieve in mathematics, a share
that increased by 6.7 percentage points between
2018 and 2022 (Graph A15.1). From all EU
countries, disadvantaged students are the most
often separated from their advantaged peers in
Hungary; and low-achieving students are the
second most separated from their high-achieving
peers. The share of top-performing 15-year-olds is
at the EU average in mathematics, and close to
the EU average in science and reading. Low basic
skills among vocational education and training
(VET) pupils hinders their later employability, and
the participation of those with a low level of
education in adult learning remains fairly limited
(see Annex 14).
Graph A15.1:
Underachievement rates in
mathematics by socio-economic background, PISA
2022
60
50
40
30
20
10
0
languages, and in VET (
126
). In a recent survey,
teachers cited low wages, high workload, lack of
professional autonomy, the composition of the
curriculum and administrative burden as the
biggest problems (
127
). The teaching workforce is
ageing: in 2021, 29.5% of teachers were aged 55
or older (EU average 24.5%). A system for
forecasting teacher supply and demand, which
could support planning, is lacking.
The government announced a major salary
reform with EU co-financing.
In 2022, teacher
salaries in Hungary, as compared with the
earnings of other tertiary-educated workers, were
among the lowest among the EU countries that
are OECD members. The actual salaries of lower
secondary teachers were equivalent to only 60%
of the salaries of other tertiary graduates (EU-22
average: 89%) (
128
). In 2023, the government
announced a major salary increase co-financed by
the European Social Fund Plus (ESF+), as part of a
programme to enhance the attractiveness of the
teaching profession. A 32.2% average increase
was implemented under this in January 2024. The
aim is to increase teachers’ salaries
to 80% of the
average wage level of other tertiary graduates by
January 2025, with novice teacher salaries
increasing even more. Teachers working in schools
with a high share of disadvantaged pupils and
applying inclusive methods should receive a salary
top-up.
Participation in early childhood education
and care (ECEC) surpasses the EU average
but teacher shortages affect quality.
From
age 3, 93.4% of children participate in ECEC (EU
average: 92.5%; EU-level target: 96%). The
regional coverage of kindergartens remains
unbalanced: in 2021, 31% of settlements had no
kindergarten (
129
). In 2020, the government
amended the employment conditions in
kindergartens, thereby reducing the required
number of qualified teaching staff. Since January
2024, VET graduates of kindergarten education
%
HU
Total
EU
HU
EU
HU
EU
Advantaged
students
2030 EU target
Disadvantaged
students
Source:
OECD (2023).
Hungary faces increasing teacher shortages.
Teacher shortages in Hungary are more
pronounced in disadvantaged areas, for
mathematics, science subjects and foreign
(
126
)
Varga, J. (ed) (2022): A közoktatás indikátorrendszere 2021
(
127
)
Társadalomtudományi Kutatóközpont Politikatudományi
Intézete: Pedagóguskutatás 2023 - Gyorsjelentés
(
128
) OECD Education at a Glance 2022, Table D3.2.
(
129
) Varga, J. (ed) (2022).
70
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Table A15.1:EU-level
targets and other contextual indicators under the European Education Area
strategic framework
2012
Indicator
1
2018
EU-27
91.8%
2013
18.0%
22.1%
16.8%
12.6%
14.5%
10.6%
Hungary
92.2%
25.3%
25.6%
24.1%
12.5%
12.6%
12.3%
6.2%
18.4%
12.6%
:
:
41.3
:
30.6%
24.9%
36.6%
47.2%
15.7%
30.4%
34.4%
39.7%
54.8%
26.3%
u
2016
u
u
2023
EU-27
92.2%
22.5%
22.9%
22.3%
10.5%
12.1%
8.7%
9.4%
11.0%
9.2%
22.4%
23.0%
29.5
:
38.7%
33.3%
44.2%
49.0%
27.7%
39.7%
36.7%
31.0%
37.4%
23.8%
2016
Target
96%
Reading
< 15%
< 15%
< 15%
<9%
Men
By gender
Women
Hungary
88.3%
2013
19.7%
28.1%
18.0%
11.8%
12.3%
11.2%
7.0%
16.7%
11.7%
:
:
42.0
u
u
b
b
Hungary
93.4%
2021
25.9%
2022
29.5%
2022
22.9%
2022
11.6%
12.8%
10.4%
5.1%
17.1%
11.7%
:
:
47.3
25.9%
29.4%
23.2%
36.0%
51.5%
14.2%
28.9%
44.5%
47.7%
62.2%
2022
u
u
2022
EU-27
92.5%
2021,d
26.2%
2022
29.5%
2022
24.2%
2022
9.5%
11.3%
7.7%
8.6%
9.9%
8.2%
21.0%
21.6%
37.2
2022
64.5%
43.1%
37.6%
48.8%
53.3%
31.7%
44.2%
40.2%
37.1%
39.5%
2022
24.5%
2021
Participation in early childhood education (age 3+)
2
Low-achieving 15-year-olds in:
Mathematics
Science
3
Total
3
Early leavers from education and training
(age 18-24)
4
Cities
By degree of urbanisation
Rural areas
By country of birth
Native
EU-born
Non EU-born
11.2%
14.0%
11.3%
26.2%
30.1%
:
:
34.1%
29.1%
39.2%
43.5%
24.8%
35.4%
29.3%
5
6
7
Socio-economic gap (percentage points)
Exposure of VET graduates to work-based learning
8
≥ 60% (2025)
Total
Men
By gender
Women
45%
:
30.5%
24.7%
36.5%
46.2%
b
17.0%
b
30.4%
37.7%
36.7%
u
8
Tertiary educational attainment (age 25-34)
9
Cities
By degree of urbanisation
Rural areas
Native
10
By country of birth
EU-born
Non EU-born
24.2%
:
22.7%
2013
11
12
Participation in adult learning (age 25-64)
Share of school teachers (ISCED 1-3) who are 55 years or over
≥ 47% (2025)
:
17.7%
2013
29.5%
2021
Notes:
b = break in time series; d = definition differs; e = estimated; p = provisional; u = low reliability; : = data not available.
Source:
1,3,4,5,7,8,9,10,12=Eurostat; 11= Eurostat, Adult Education Survey; 2,6=OECD, PISA.
are allowed to work as ECEC teachers, which was
earlier only possible with a tertiary diploma (
130
).
Early school leaving decreased in 2023.
The
rate of early leavers from education and training
stood at 11.6%, against an improving EU average
of 9.5% and the EU-level target of less than 9%.
The rate is higher in the least-developed districts
and among Roma (62.7% vs 9.9% among non-
Roma) (
131
). Participation data shows that lowering
the compulsory school age from 18 to 16 in 2012-
2013 had a significant negative impact on school
attendance (
132
). The national recovery and
resilience plan includes measures to improve the
quality of lower secondary education and the
provision of special education, and to support
teachers in acquiring new specialisations.
The number of tertiary graduates cannot
meet the growing demand for a highly skilled
workforce.
At 29.4%, Hungary has one of the
lowest rates of the population aged 25-34 holding
a tertiary degree in the EU. This rate has even
decreased since 2013, when it was 31.2% (EU
average: 43.1%; EU-level target: 45.0%). The
employment rate of recent tertiary graduates
(94.5%) exceeds the EU average (86.7%),
indicating a high demand.
Academic freedom has declined in recent
years.
By 2024, all but five state universities were
restructured to come under the control of public
interest trusts set up by the government. The
boards of the public interest trusts have all
decision-making
powers in the universities’ key
areas without being accountable for their own
operation and decisions, either to the government
or to the academic body of the university. The
European Commission raised concerns about
academic freedom with regard to Hungary’s
compliance with the enabling condition under
cohesion policy on the EU Charter of Fundamental
Rights.
(
130
) Government decree 401/2023. (VIII. 30.).
(
131
) Magyar Nemzeti Társadalmi Felzárkózási Stratégia 2030.
2022 data
(
132
)
Adamecz-Völgyi, A et al.: The Labor Market and Fertility
Impacts of Decreasing the Compulsory Schooling Age
71
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ANNEX 16: HEALTH AND HEALTH SYSTEMS
A healthy population and an effective,
accessible and resilient health system are
prerequisites for a sustainable economy and
society.
This Annex provides a snapshot of
population health and the health system in
Hungary.
In 2022, life expectancy at birth increased
compared to 2021, but remained among the
lowest in the EU.
Due to the COVID-19
pandemic, in 2021 life expectancy at birth in
Hungary was more than 2 years lower than in
2019. Then, in 2022, it rebounded almost to the
pre-pandemic level, as mortality from COVID-19
declined (
133
). In 2021, the leading causes of death
were diseases of the circulatory system
(‘cardiovascular diseases’) followed by cancer and
COVID-19. Lung, colorectal and breast cancer
account for almost half of all cancer deaths in
2021. Mortality rates due to preventable and
treatable causes are nearly double the EU
averages. At the same time, mortality in
economically active age groups, both as a share of
total mortality and relative to the workforce size,
is among the highest in the EU. The suicide rate
among men in Hungary has been one of the
highest in the EU. In 2020 it was almost 1.5 times
the average across the EU. Long waiting lists have
been reported as the most frequent barrier to
accessing mental health services (
134
).
Graph A16.1:
Life expectancy at birth, years
80.9
81.0
76.2
differences in purchasing power) was less than
half the average across the EU. Spending per
capita is below the respective EU averages for
outpatient care, inpatient care, disease prevention,
pharmaceuticals and medical devices. When
measured as a share of GDP, health spending in
Hungary remained low at 7.4% in 2021, compared
to 10.9% on average across the EU. Provisional
data suggest that in 2022 total healthcare
spending fell back to 6.8% of GDP. Public spending
on health as a proportion of total health
expenditure (72.5%) was also well below the EU
average (81.1%) in 2021. Related to this, the
share of household out-of-pocket expenditure for
healthcare was significantly above the EU average.
Based on the age profile of the Hungarian
population, public spending on health is projected
to increase by 0.5 percentage points (pps) of GDP
by 2070, compared to 0.6 pps for the EU overall
(see Graph 16.2 and Annex 21).
Graph A16.2:
Projected increase in public
expenditure on healthcare over 2024-2070
Hungary
4.3
0.5
2024
0.6
2070
increase
8
EU
0
2
6.6
4
% of GDP
6
81.3
76.5
80.4
75.7
80.1
80.6
Baseline scenario
Source:
European Commission / EPC (2024)
76.0
76.0
74.3
2017
2018
2019
Hungary
2020
EU
2021
2022
Source:
Eurostat
Health expenditure remains among the
lowest in the EU.
Although total health spending
has been increasing steadily, in 2021 per capita
health spending in Hungary (adjusted for
(
133
) Based on data provided directly by Member States to the
European Centre for Disease Prevention and Control, under
the European Surveillance System.
(
134
)
https://europa.eu/eurobarometer/surveys/detail/3032
In 2021, spending on prevention amounted to
7.6% of total spending on healthcare,
compared to 6.0% for the EU overall.
Between
2019 and 2021, spending on preventive care in
Hungary more than doubled, in line with the trend
across the EU. Proportionally, budget shares for
prevention across the EU increased most for
emergency response, disease detection and
immunisation programmes.
The health system in Hungary suffers from a
chronic scarcity of medical professionals.
With 3.3 practising doctors per 1 000 population in
2021, Hungary has fewer doctors than the EU
average (4.1 per 1 000 population). Under the
newly adopted Eurostat definition of nurses
(following the EU Directive 2005/36/EC on the
recognition of professional qualifications) the
number of nurses per 1 000 population in Hungary
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Table A16.1:Key
health indicators
2018
Treatable mortality per 100 000 population (mortality avoidable through optimal
quality healthcare)
Cancer mortality per 100 000 population
Current expenditure on health, % GDP
Public share of health expenditure, % of current health expenditure
Spending on prevention, % of current health expenditure
Available hospital beds per 100 000 population
Doctors per 1 000 population
Nurses per 1 000 population
Total consumption of antibacterials for systemic use, daily defined dose per
1 000 inhabitants per day ***
176.0
335.7
6.6
69.6
3.1
695
3.4
4.9
14.8
2019
173.2
327.7
6.3
68.7
3.2
691
3.5
5.0
14.4
2020
179.6
320.9
7.3
70.8
3.7
676
3.1
5.0
11.2
2021
188.9
309.9
7.4
72.5
7.6
679
3.3
3.7
11.9
2022
NA
NA
6.8
NA
NA
NA
NA
NA
14.4
EU average
(latest year)
93.3 (2021)
235.4 (2021)
10.9 (2021)
81.1 (2021)
6.0 (2021)
525 (2021)
4.1 (2021)*
7.9 (2021)
19.4 (2022)
Note: The EU average is weighted for all indicators except for doctors and nurses per 1 000 population, for which the EU simple
average is used. Doctors’ density data refer to practising doctors in all
countries except Greece, Portugal (licensed to practise) and
Slovakia (professionally active). Nurses’ density data refer to practising nurses in all countries except Ireland, France, Portugal,
Slovakia (professionally active) and Greece (hospital only).
Source:
Eurostat Database; except: * OECD, ** Joint Questionnaire on non-monetary healthcare statistics, *** ECDC, **** Council
Recommendation on stepping up EU actions to combat antimicrobial resistance in a One Health approach.
(3.7) is significantly lower than the EU average
(7.9). Workforce shortages are linked to emigration
to other European countries for higher pay and, to
some extent, the private sector (
135
). In 2021, the
number of medical graduates, at around 16 per
100 000 population, was close to the EU average,
while the respective rate for nursing graduates
was below the EU average. One issue is whether
new medical graduates will opt to work in the
public sector or choose to practise in the private
sector or abroad. Hungary has had fewer staff
working in human health activities since the start
of the pandemic, contrary to the overall trend in
the EU. Between the first quarter of 2020 and the
second quarter of 2023, employment in healthcare
in Hungary dropped by 5%, while it increased in
the EU by 9% on average. More than 40% of
doctors are aged 55 or older, raising concerns
about the long-term accessibility of health
services. The government has been trying to
address challenges in health workforce retention
through significant wage increases for doctors,
dentists and pharmacists, implemented in stages
over the last 3 years. However, higher salaries and
better working conditions abroad continue to be
incentives for emigration to other countries.
EU funds support substantial investments in
healthcare in Hungary.
Historically, investment
levels in healthcare have lagged behind in
Hungary, a fact also reflected in the low
availability of key diagnostic (medical imaging)
technology. Hungary is now among the EU
(
135
) Gaal P et al. (2021). The 2020 reform of the employment
status of Hungarian health workers: will it eliminate informal
payments and separate the public and private sectors from
each other? Health Policy 125(7): 833-40.
countries that allocate the largest relative share of
funding under their recovery and resilience plan
(RRP) to investments and reforms in the
healthcare sector (12.5% of the RRP’s total value,
corresponding to EUR 1.3 billion). Hungary plans to
make an ambitious range of reforms and
investments for the development of primary
healthcare, digitalisation of the healthcare sector,
and strengthening of inpatient care and the
infrastructure for it. Complementary investments
are planned under the EU cohesion policy funding
for 2021-2027. Hungary is set to invest
EUR 154 million in its healthcare system under the
European Regional Development Fund, with a view
to improving service quality through modern
infrastructure development (
136
).
(
136
) The EU cohesion policy data reflect the status as of 13 May
2024.
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ANNEX 17: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL
Annex 17 showcases the economic and social
regional dynamics in Hungary.
It provides an
analysis of economic, social and territorial
cohesion in the Hungarian regions and assesses
emerging investment and subnational reform
needs to foster economic growth, social
development and competitiveness in the country.
Overview
of
economic
performance at regional level
and
social
of the other regions. Even though real productivity
grew more strongly in the lagging regions than in
the more developed ones between 2012 and
2022, the growth in productivity slowed down
compared to the previous decade. Several factors
can explain these trends.
Key assets, such as transport infrastructure,
remains limited in the least developed
counties.
Outside the capital region, the share of
population living in a radius that can be reached
within 90 minutes by car or train (
138
) is between
72-77% and 11-13%
respectively in Győr-Moson-
Sopron, Komárom-Esztergom and Fejér. However,
these percentages drop to as low as 37% and 3%
in Békés county.
Investments in R&D are concentrated in
Budapest (2.8% of GDP, above the EU
average of 2.3%) while in the rest of the
country it ranges from only 0.6% in Pest to
1.4% in Dél-Alföld.
R&D expenditure in the
business sector significantly lags behind the
national average (1.6%) in the less developed
regions, except in Közép--Dunántúl and Dél-Alföld
(1.3% and 1.4%, respectively). The rate of SMEs
introducing product or process innovation in the
less developed regions (especially in Dél- and
Észak-Alföld and Dél-Dunántúl) was well below
the performance of the capital.
Hungary has one of lowest rates of
digitalisation of businesses, with significant
differences between the capital and the less
developed regions.
The share of adults with at
least basic digital skills was above the EU average
in 2023 (58.9% vs 55.5% in the EU). However, the
low-skilled and the unemployed who are found in
higher concentration in the less developed regions,
still lag behind in this respect.
In the past 10 years, economic growth has
been sustained but with significant
disparities at regional level.
The process of
internal convergence remains slow (Figure 1).
Graph A17.1:
GDP per capita (2012) and GDP per
capita growth (2013-2022)
Source:
DG REGIO calculations based on JRC (ARDECO) and
Eurostat data
GDP per capita remains slightly above 50%
as compared to EU average in the 4 lagging
NUTS 2 regions (Dél-Alföld, Dél-Dunántúl,
Észak-Alföld, Észak-Magyarország).
In 2022,
GDP per capita in the capital region of Budapest
stood at 158% of the EU average while it was only
50% in Észak-Alföld. Real total GDP has been
driven by growth in some of the more developed
regions while out of the lagging regions only
Észak-Magyarország and Dél-Alföld performed
around the national average between 2012 and
2022. Disparities in GDP per capita were reflected
in labour productivity gaps between regions (
137
).
Productivity was higher than the national average
(69,4% of the EU average, 2022) in Budapest, Pest
(74.2% and 77.6% of the EU average) while it
stood slightly above 63% of EU average in most
(
137
) Eurostat.
(
138
) The share of population who can reach in 90 minutes any
destination within a 120 km radius from their residence
74
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Table A17.1:Selected
indicators at regional level in Hungary
GDP per head
(PPS)
NUTS region name
Index, EU27 = 100 Index, EU27 = 100
(2022)
(2022)
Average % change Average % change
on the preceding on the preceding
year (2013-2022) year (2013-2022)
Average annual
change per 1000
residents (2013-
2021)
1.9
-2.5
-1.9
9.3
-1.9
1.5
-7.6
-8.5
-5.2
-6.7
% of
population
(2022)
% of population
aged 18-24 (2023)
% of all
Index, EU27 = 100
households (2021)
Productivity (GVA
(PPS) per person
employed)
Real productivity
growth
GDP growth
Population growth
At-risk-of-
poverty or
social
exclusion
Early school leavers R&D expenditure
Households with
broadband
connection
EU Regional
Competitiveness
Index 2.0 - 2022
edition
% of GDP (2021)
European Union (27 MS)
Magyarország
Budapest
Pest
Közép-Dunántúl
Nyugat-Dunántúl
Dél-Dunántúl
Észak-Magyarország
Észak-Alföld
Dél-Alföld
100
76
158
65
71
68
52
50
50
55
100
69.4
74.2
77.6
65.9
68.4
63.4
63.5
63.2
64.4
0.7
1.4
1.1
2.1
1.5
1.6
1.2
1.7
1.1
1.7
1.6
3.32
3.38
4.87
3.8
2.46
2.35
3.07
2.73
3.02
21.6
18.4
13.8
16.1
11.3
14.3
24.6
25
24
19.5
9.5
11.6
5.8
10.9
10.6
5
14.1
18.5
16.4
11.2
2.3
1.6
2.8
0.6
1.3
1.1
0.9
0.6
1
1.4
90
91
96
94
92
92
89
86
88
87
100
83.5
105.5
105.5
82.3
83.9
69.9
66
67.9
73.3
Source:
Eurostat, EDGAR database
The share of employment in the science and
technology sectors is close to the EU average
(23.4% of total employment) at national
level (23.2%), but significantly lower in the
less developed regions, except for Pest.
Employment in high-technology sectors and in
knowledge-intensive services is below the EU
average in the 4 less developed regions.
The less developed regions experienced
significant depopulation.
Between 2013 and
2021 (
139
), the population shrunk by 8.5%, in
Észak-Magyarország and by 7% in Dél-Dunántúl
and Dél-Alföld. At the same time, the population in
Pest increased by more than 9% and by 7.4% in
Győr-Moson-Sopron
due to internal migration
flows towards the relatively more developed
counties.
Regional disparities remained significant in
2023 in terms of the level of educational
outcomes.
Pupils’ performance in basic skills was
lower in the least developed regions than the
national average in all grades tested. In addition,
the rate of early school leavers in these regions
was also higher. Észak-Magyarország (18.5 %) and
in Észak-Alföld (16.4 %) faced one of the highest
early school leaving rates in the EU, in contrast to
5.8 % in Budapest and 5% in Nyugat-Dunántúl.
The share of the population aged 25-64 with
an education attainment below secondary
level was also significantly higher in some of
the
less
developed
regions
(Észak-
Magyarország: 20.6%, Észak-Alföld: 19.2%, Dél-
(
139
) Central Statistical Office.
Dunántúl: 17.5%) than the national average (13%)
and 21.6% in rural areas. In addition, the share of
low-educated young people among younger
cohorts appears to be increasing in all the four
least developed regions. Tertiary educational
attainment level (age class from 25 to 34 years)
was below the national (29.4%) and EU average
(43.1%), in all less developed regions (between
16.3% and 30.1%).
As a result of these demographic developments
and the lagging levels of education attainment,
Hungary’s four least developed regions and rural
areas are in a talent development trap.
There are significant differences between
the regions in terms of young people who are
neither in employment nor in education and
training
(NEET). While the national average
(10.8%) is below the EU average (11.7%), in the
least developed regions, except for Dél-Alföld, it
remained between 13.5% and 17.7%. Rural areas
also suffer significantly more than towns (15.9%
vs. 10.5% and 5.4%) and the difference was even
more striking for women.
Labour market conditions are generally
better or corresponding to the EU average in
all regions, but certain groups lag behind.
The
employment rate hit another record (80.7%), but a
gap of 9 pps remains between the best performing
region of Budapest (84.4%) and Észak-
Magyarország (75.8%). However, the 4 least
developed regions consistently underperform in
terms of employment and unemployment rate of
low-skilled people. The employment and
unemployment rate in Roma was 47.3% and
17.6% respectively, with nearly 80% of the Roma
population concentrated in the 4 least developed
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regions. 55% of all unemployed or inactive people
with disabilities also lived in these regions. There
was a spatial mismatch in labour supply and
shortage, with vacancy rates highest in the more
developed regions (Közép- and Nyugat-Dunántúl).
The decrease of poverty has slowed down
since 2018 and reversed in 2023.
The share of
the population being at-risk-of-poverty and social
exclusion was significantly higher in three lagging
regions, reaching a high of 31.7% in north Hungary
as compared to better performing regions (e.g.
10.9% in Közép-Dunántúl). Poverty was also more
pronounced in rural areas with around 25.6% of
the population being at-risk-of-poverty in 2023
(+12 pp. from 2022) and especially in districts
(“járás”) with an above-average
share of Roma.
Energy poverty (
140
) is particularly prevalent
in the four least developed regions.
This is
where a significant part of the population lives in
flats in bad condition using unsustainable biomass
(solid fuel) and individual heating solutions (42%
Észak-Alföld, 46% Dél-Dunántúl, reaching as high
as 65% of the households in villages), which
contributes to air pollution. Hungary records
persistent exceedances in PM10 levels in three
geographic areas and is harmful for health. These
conditions are more prevalent in the lowest
income quintile.
There is considerable regional variation in
the carbon intensity of the economy in
Hungary’s regions, as well as in the
composition of their greenhouse gas
emissions,
being the highest in northern Hungary.
Buildings added more significantly to regional GHG
emissions in the northern Great Plain region, Pest
and Budapest, while GHG emissions from energy
have been particularly pronounced in northern
Hungary. Industry emissions dominated in northern
Hungary, Budapest, and Central Transdanubia.
Map A17.1:
Regional Competitiveness Index, 2022,
Hungary
Source:
DG REGIO, JRC
These factors are reflected in the composite
indicator of the Regional Competitiveness
Index,
which stands at 83% of the EU average in
Hungary, and around 70% in the 4 lagging regions.
Investment and subnational reform needs
ahead
Hungary would benefit from increasing
investments to combat poverty, especially in
the most deprived districts of the country.
It
could better support the green and digital
transition at local level with better targeted
integrated
territorial
policies,
facilitating
investments
in
net-zero
technologies
manufacturing. Hungary could benefit from the
opportunities under the Strategic Technologies for
Europe Platform initiative to boost investments in
the critical technologies to support the industry
transformation of industry.
Social inclusion policies could be reinforced
in view of the negative trends of poverty and
its territorial concentration.
Hungary’s main
response was the Catching-up municipalities
initiative, which targets the 300 most deprived
municipalities, with EU cohesion policy funding
from Cohesion policy and the Recovery and
Resilience Plan. Measuring the results and
reviewing the initiative, when necessary, could
ensure its long-term impact. In addition, local level
interventions could be complemented by
strengthening the inclusiveness of mainstream
education, employment and First policies, by better
addressing territorial inequalities and diversities.
(
140
) Central Statistical Office.
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Underinvestment in making houses more
energy efficient contributes to poverty and
environmental concerns, which particularly
affect those living in bad housing conditions
that are concentrated in lagging and non-
urban districts.
Therefore, providing non-
repayable support to low-income households
facing energy poverty
–
focusing on the least
developed districts - for investments in energy
efficiency that deliver tangible benefits in the
long-term (e.g. by deep renovating buildings),
combined with investments in renewable energy,
would contribute to lowering energy costs further,
reducing emissions and improving air quality.
There is a need to step up investment in the
digitalisation of businesses
–
including
advanced technologies - in the less
developed regions, ensuring that the support
reaches the enterprises in lagging areas.
The
allocation of funding dedicated to improving the
digital skills of people with low digital skills could
better take into account the territorial distribution
of the target group, focusing on the least
developed districts. The take-up of smart city
solutions by municipalities has been slow in the
current programmes. Therefore, launching specific
measures appears to be necessary.
The weaker research, development and
innovation performance of the less
developed
and
lagging
regions,
the
differences in the endowments and economic
profile of regions call for a more
differentiated
approach
in
smart
specialisation (S3) and for a strengthened
governance
of
regional
innovation
ecosystems.
Fairness and inclusion in education also has
a strong regional dimension,
therefore a
mapping of the school network, a review of
educational funding and governance, and targeted
comprehensive measures to strengthen access to
quality mainstream education and lifelong learning
in the most affected settlements could help
nurture and retain talent in the most
disadvantaged regions.
Labour market challenges mainly concern a
few well-defined vulnerable groups, such as
low-skilled people, NEETs, Roma, people with
disabilities, women, especially young people
and those with care responsibilities,
concentrating mostly in the least developed
regions.
Mapping these groups, assessing their
needs and addressing them with more targeted
action could contribute to easing labour shortages.
The low level of administrative capacities of
municipalities in the least developed districts
tends to limit their access to EU cohesion
policy funding.
At the same time, the integrated
territorial development programmes of counties
failed to sufficiently address the complexity of
development challenges which their least
developed districts face. The multiple challenges
affecting the least developed districts could be
better addressed through integrated territorial
strategies that consider the use of functional
areas to deliver basic public services.
In addition, local development projects did
not effectively capitalise on the resources of
local stakeholders, except for the pilot
community-led local development projects
with a limited thematic scope.
Therefore,
Hungary would benefit from re-introducing the
instrument of community-led local development in
order to involve local stakeholders in the co-design
and delivery of local investments, making use of
local resources and solutions.
The financing of local municipalities'
mandatory tasks is characterised by a lack
of funding for operational tasks (
141
), a
below-average
funding
for
capital
expenditure
in
the
least
developed
municipalities and a restricted access to
market funding, which may affect the
durability of investments and services
financed by EU funds.
An increasing share of
public services and decisions concerning local
communities have been transferred to central
government and as a result, the overall autonomy,
including fiscal autonomy, of local authorities in
Hungary is also among the lowest in the EU (
142
).
The recently adopted Construction Law reinforces
this trend as it disconnects municipality projects
from the local needs. A higher level of local
(
141
)
https://szentendre.hu/az-onkormanyzati-finanszirozasi-
rendszer-kiskorunak-tekinti-az-embereket/
and
https://hang.hu/belfold/elodazhatatlan-az-onkormanyzati-
finanszirozasi-rendszer-megujitasa-152998
(
142
)https://ec.europa.eu/regional_policy/sources/policy/analysis/K
N-07-22-144-EN-N.pdf
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autonomy could have a positive impact on
people's satisfaction with services as well as on
their political trust, including by better addressing
local needs through the use of EU funds. This
would mean that finances are adjusted to cover
the real costs of mandatory municipality tasks and
that there are transparent and normative
conditions applicable for all local municipalities as
for the access to loans and other financial
instruments. In addition, to better implement their
integrated strategies, local municipalities could be
supported to strengthen their human capital and
expertise, possibly as shared capacity and by
making use of technical assistance resources.
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MACROECONOMIC STABILITY
ANNEX 18: KEY FINANCIAL SECTOR DEVELOPMENTS
Hungary has a predominantly bank-based
financial sector.
Total banking-sector assets
were equivalent to 99.9% of GDP in Q3-2023. The
domestic ownership of local lenders accounts for
62.9% of total banking-sector assets, while the
five largest banks in the system hold around 56%
of total banking-sector assets.
The Hungarian banking sector remains highly
profitable
and
resilient.
Banking-sector
profitability reached historically high levels with
return on equity of 24.8% in Q3-2023 (EU
average: 9.9%), mainly driven by an increase in net
interest income. Other factors that have had a
more negative impact on bank profitability include
the extra profit tax, an increase in operating costs,
and the interest-rate cap (
143
). The cost-to-income
ratio decreased to 51.8% in Q3-2023 (EU average:
52.8%) from 55.6% in 2022. The banking capital-
adequacy ratio remained stable at 19.4% in Q3-
2023 (EU average: 19.6%), signalling the
robustness of the banking sector. Hungarian banks
remain well capitalised, with a common equity tier
1 ratio of 16.8% in Q3-2023 (EU average: 16.1%).
The liquidity reserve of the banking system
remains high. To further strengthen the resilience
of credit institutions, Hungary’s central bank (MNB)
decided to increase the countercyclical capital
buffer rate to 0.5% from 1 July 2024 after having
postponed in June 2023 the activation of the
countercyclical capital buffer by one year (initially
planned from 1 July 2023). (
144
) The MNB also
announced the reactivation of the systemic risk
buffer from 1 July 2024 due to risks in the
commercial real-estate market.
The non-performing loan (NPL) ratio has
remained rather stable but risks to the
quality of portfolios remain.
The NPL ratio was
2.7% in Q3-2023 (EU average: 1.8%), the lowest
level since 2017. Similarly, the coverage ratio of
NPLs remained high at 54.2% in Q3-2023,
showing banks’ ability to absorb any future losses
(EU average: 43.7%). Compared to Q3-2022, the
corporate NPL ratio remained unchanged in Q3-
2023, while the household NPL ratio declined.
(
143
) Magyar Nemzeti Bank, November 2023,
Financial Stability
Report,
MNB.hu
(
144
) Magyar Nemzeti Bank, December 2023,
MNB does not
change Countercyclical Capital Buffer rate,
MNB.hu
According to the MNB, government measures (e.g.
family housing subsidies, mortgage interest rate
caps) may have helped to keep NPL ratios low in
the household sector. In the corporate sector,
strong liquidity and caps on the interest paid by
SMEs may have played an important role in
keeping corporate NPL ratios low. However,
increasing risks in the commercial real-estate
segment and the phasing out of interest-rate caps
pose risks to the NPL ratio (
145
).
Lending activity slowed in the second half of
2023.
Lending
growth
to
non-financial
corporations declined to around 6.2% in December
2023, which indicates a slowdown compared to
15.1% in December 2022. Growth in lending to
households (comprising consumer credit and
mortgages) also declined to 2.7% in December
2023 compared to 8% in December 2022 (more
specifically, lending growth for house purchases
fell to 1.3% in December 2023). This is a
significant decrease from the previous year and
was mainly due to a decline in demand for credit
and the uncertain economic outlook.
In December 2021, the European Systemic
Risk Board (ESRB) (
146
) issued a warning to
Hungary on medium-term vulnerabilities in
the residential real-estate market as being a
potential risk to the country’s financial
stability.
The ESRB considered the main
vulnerabilities to be: (i) signs of house-price
overvaluation; (ii) strong house-price growth; (iii)
high rates of growth in mortgage credit; and (iv)
rapid growth in household indebtedness. In
February 2024, the ESRB assessed the current
national macroprudential policy measures as
appropriate and sufficient to address these
risks (
147
).
(
145
) Magyar Nemzeti Bank, November 2023,
Financial Stability
Report,
MNB.hu
(
146
) European Systemic Risk Board, February 2022,
ESRB.europa.eu
(
147
) European Systemic Risk Board, February 2024,
ESRB.europa.eu
.
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Table A18.1:Financial
Soundness Indicators
Total assets of the banking sector (% of GDP)
Share (total assets) of the five largest banks (%)
1
Share (total assets) of domestic credit institutions (%)
NFC credit growth (year-on-year % change)
HH credit growth (year-on-year % change)
1
Financial soundness indicators:
- non-performing loans (% of total loans)
- capital adequacy ratio (%)
2
- return on equity (%)
1
Cost-to-income ratio (%)
1
Loan-to-deposit ratio (%)
Central bank liquidity as % of liabilities
Private sector debt (% of GDP)
Long-term interest rate spread versus Bund (basis points)
Market funding ratio (%)
3
Green bonds outstanding to all bonds (%)
1-3
4-10
11-17
18-24
24-27
2017
95,4
49,6
53,7
10,2
2,6
2018
92,6
50,0
52,8
13,6
7,3
2019
90,9
52,7
57,1
14,1
16,6
2020
107,4
50,1
57,8
8,9
14,3
2021
109,7
51,6
58,6
10,7
15,1
2022
108,4
55,7
60,0
15,2
8,0
2023
99,9
-
62,9
6,2
2,7
2,7
19,4
24,8
51,8
70,0
7,0
-
507,9
-
-
EU
257,0
-
-
-
-
1,8
19,6
9,9
52,8
93,3
-
133,0
107,7
50,8
4,0
Median
184,6
69,6
62,9
2,4
1,4
1,8
20,1
13,2
44,9
80,2
0,7
118,4
104,2
39,8
2,7
8,4
5,4
4,2
3,6
3,2
3,1
16,2
18,5
18,0
18,3
19,7
18,9
14,5
14,7
14,3
7,6
12,7
12,1
64,4
63,9
64,7
61,0
58,4
55,6
71,8
72,7
76,0
74,4
75,5
70,3
4,0
2,9
3,7
9,6
10,4
8,8
69,9
68,7
67,4
77,0
80,9
78,8
264,5
266,2
271,8
273,6
343,5
642,6
35,2
33,1
32,5
35,7
40,1
39,8
-
-
-
-
-
-
Colours indicate performance ranking among 27 EU Member States.
(1) Last data: Q3 2023.
(2) Data is annualized.
(3) Data available for EA countries only, EU average refers to EA area.
Source:
ECB, Eurostat.
The housing market in Hungary has been on a
downward trend since mid-2022, with a
decline in housing prices and a drop in the
number of sales transactions.
According to the
MNB, house prices fell by 0.8% in Q2-2023 (year-
on-year), marking the first time that a year-on-
year decline in prices was seen since 2014. The
number of housing-market sales transactions also
fell, dropping by 11% in Q3-2023 in year-on-year
terms, consistent with the drop in mortgage
lending. Asking prices are adjusting to low
demand (
148
).
Household indebtedness has continued to rise
but is expected to fall in the coming months
and remains relatively low compared with
the EU average.
According to Eurostat, household
debt decreased from 20.8% of GDP in 2020 to
18.6% of GDP in 2022 (
149
). Rising interest rates
and economic uncertainty have dampened
demand for mortgages, and ended the recent
pattern of sharp growth in property prices, thus
mitigating the risks associated with rising
indebtedness. In terms of borrower-based
measures to reduce indebtedness, the MNB
announced: (i) an increase in the threshold value
for
debt-service-to-income
limits
as
of
1 July 2023; and (ii) the introduction of a
preferential loan-to-value limit for first-time home
(
148
) Magyar Nemzeti Bank, November 2023,
Housing Market
Report,
MNB.hu
(
149
)
Eurostat
buyers as of 1 January 2024 (
150
). Furthermore, the
share of variable-interest-rate loans, which are
exposed to interest rate risk, has significantly
decreased since 2022.
Hungary’s insurance sector is rather small
and highly concentrated.
The top five market
participants account for around 60% of all
premium revenue. The total assets of all insurers
were equivalent to 4.5% of GDP in 2022, which is
relatively low (EU average: 56.1%). In 2022, the
insurers’ solvency ratio was 173.3%, above the
regulatory minimum, but below the EU average
(258.9%). In Q3-2023, there were 33 insurance
companies operating in the Hungarian market,
while the breakdown of insurance activities was as
follows: 30% life insurance, 6% non-life insurance,
and 60% composite.
Capital markets play a less significant role
than banks in financing the economy.
Hungary’s stock-market
capitalisation remained
rather low at 12.9% of GDP in 2022 (EU average:
65.6%). The MNB continues to support the
development of the green bond and credit markets
through its green corporate, municipal and retail
preferential-capital-requirements
programmes.
The MNB has also set up an innovation hub in
order to provide quick responses to regulatory
questions related to Fintech innovative solutions
(e.g. payment services, crowdfunding), and a
(
150
) Magyar Nemzeti Bank, Borrower-Based Measuers,
MNB.hu
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regulatory sandbox where Fintech innovations can
be tested.
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ANNEX 19: TAXATION
This annex provides an indicator-based
overview of Hungary’s tax system.
It includes
information on the tax structure (the types of tax
that Hungary derives most of its revenue from),
the tax burden on workers, and the progressivity
and redistributive effect of the tax system. It also
provides information on tax collection and
compliance, and on the risks of aggressive tax
planning activity.
Hungary’s tax revenues as a percentage of
its GDP are lower than the EU aggregate for
all tax types except consumption taxes.
Table
A19.1 shows that Hungary’s annual
tax
revenues as a percentage of GDP increased from
33.9% in 2021 to 35.1% in 2022 but remained
below the EU aggregate of 40.2%. Labour taxation
(14.6% of GDP in 2022) is the most important tax
base, although its relative importance has been
decreasing in recent years. The tax system also
relies heavily on consumption taxes (13.9% of
GDP in 2022, above the EU average of 11.0%).
Capital taxation in relation to GDP was 6.6% in
2022 (against an EU average of 8.9%). Hungary’s
9% corporate tax rate is the lowest in the EU.
Revenues from property taxes were relatively low
as a percentage of both GDP and total tax
revenues. Pollution and resources taxes account
for 10.2% of environmental taxes, which is one of
the highest shares in the EU. However, there could
be potential to strengthen the application of the
‘polluter pays’ principle. Hungary has implemented
three of the six main types of pollution and
resources taxes (i.e. taxes on waste landfilling,
discharge of waste into water, and plastic
products). There remains scope to expand waste
disposal taxes (including incineration) and
implement the three other types (i.e. taxes on NOx
emissions, fertilisers and pesticides).
Hungary has made a commitment to simplify
the tax system within the framework of its
Recovery
and
Resilience
Plan
(RRP)
implementation.
Hungary’s
RRP
includes
commitments to introduce tax simplification
measures in order to reduce tax-related
administrative costs and improve voluntary
compliance incentives, thereby making a
contribution to a more competitive and fairer
economy and a better business environment. One
of the deliverables of the RRP is the phasing-out
of six temporary sectoral tax measures, including
the surtax on the retail sector. However, Hungary
has so far kept these tax measures in place for
2024 with a decree published on 31 May 2023.
The RRP also contains dedicated measures to
tackle aggressive tax planning.
Hungary’s labour tax burden is significantly
higher than the EU average for low wage-
earners.
Graph A19.1 shows that Hungary’s total
labour tax wedge (at 41.2%) was much higher in
2023 than the EU average (31.7%) for single
people earning 50% of the average wage but
Table A19.1:Taxation
indicators (to be updated once new data are available)
HU
2010
Total taxes (including compulsory actual social contributions) (% of
GDP)
Labour taxes (as % of GDP)
Consumption taxes (as % of GDP)
Capital taxes (as % of GDP)
Of which, on income of corporations (as % of GDP)
Total property taxes (as % of GDP)
Recurrent taxes on immovable property (as % of GDP)
Environmental taxes as % of GDP
Tax wedge at 50% of average wage (Single person) (*)
Tax wedge at 100% of average wage (Single person) (*)
Corporate income tax - effective average tax rates (1) (*)
Difference in Gini coefficient before and after taxes and cash social
transfers (pensions excluded from social transfers) (2) (*)
Outstanding tax arrears: total year-end tax debt (including debt
VAT Gap (% of VAT total tax liability, VTTL)(**)
22.3
36.8
17.3
12.3
7.2
2.9
1.1
0.3
2.6
41.0
46.6
2020
36.0
16.2
13.9
5.9
3.0
1.1
0.4
2.2
43.6
43.6
10.3
7.6
12.0
7.1
Hungary
2021 2022
33.9
14.5
13.7
5.6
2.9
0.9
0.4
2.0
43.2
43.2
10.3
4.6
12.0
4.4
5.8
35.1
14.6
13.9
6.6
3.0
1.0
0.3
1.9
41.2
41.2
10.3
5.6
2023
2010
37.9
20.0
10.8
7.1
2.4
1.9
1.1
2.4
33.9
41.0
2020
40.0
21.3
10.7
8.0
2.5
2.3
1.2
2.2
31.7
40.1
19.5
8.1
40.9
9.7
EU-27
2021 2022
40.4
20.7
11.2
8.6
3.0
2.2
1.1
2.3
32.1
39.9
19.0
8.2
35.5
5.4
40.2
20.3
11.0
8.9
3.4
2.1
1.0
2.0
31.8
40.0
19.0
7.9
2023
Tax structure
Progressivity &
fairness
41.2
41.2
31.7
40.2
12.6
8.6
Tax administration &
considered not collectable) / total revenue (in %) (*)
compliance
(1) Forward-looking effective tax rate (OECD).
(2) A higher value indicates a stronger redistributive impact of taxation.
(*) EU-27 simple average.
(**) Forecast value for 2022, if available. For more details on the VAT gap, see European Commission, Directorate-General for
Taxation and Customs Union, 2023,
VAT gap in the EU,
https://data.europa.eu/doi/10.2778/911698.
For more data on tax revenues as well as the methodology applied, see the Data on Taxation webpage,
https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en.
Source:
European Commission and OECD
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close to the EU’s figure
for people earning the
average wage and above. The ability of the tax
and benefit system to reduce inequality (measured
by its ability to reduce the GINI coefficient) has
decreased since 2010 and fallen significantly
below the EU average (see Table A19.1).
Graph A19.1:
Tax wedge for single and second
earners, % of total labour costs, 2023
Tax wedge, % of total labour costs
50
45
40
35
30
vein, the ‘eVAT’ platform, which was launched on
1 January 2024, enables all VAT-registered
taxpayers in Hungary to access their pre-filled VAT
returns.
Tackling aggressive tax planning remains a
challenge.
High foreign direct investment (FDI)
flows as a percentage of GDP and the high share
of FDI stocks held through special purpose entities
suggest that Hungary’s tax structure is being used
for aggressive tax planning. Hungary’s
RRP
includes a commitment to strengthen the tax
system against the risk of aggressive tax planning
by introducing minimum substance requirements
for corporate income tax for shell companies,
strengthening transfer pricing regulations and
broadening the scope of non-deductibility for
outbound payments. Additional supporting
measures aim to enhance the effectiveness of tax
avoidance rules.
Graph A19.2:
Stocks of assets and liabilities held
through special purpose entities (SPEs) as a % of
the respective total asset and liability stocks of
foreign direct investment (FDI) in 2022
100%
15%
9%
41.2
41.2
41.2
41.2
41.2
25
20
50
100
150
Earnings as % of the average wage
Single earner - HU
Single earner - EU average
Second earner - HU
Second earner - EU average
The second earner tax wedge assumes a first earner at 100%
of the average wage and no children. For the methodology of
the tax wedge for second earners, see OECD, 2016,
Taxing
Wages 2014-2015.
Source:
European Commission
Hungary performs relatively well on tax
compliance and tax administration.
Tax
arrears for 2021 amounted (as in 2020) to 12%
of total net revenue. This was significantly below
the EU average of 35.5%, although that average
was distorted by very large values in a few
Member States. The VAT gap (the gap between
revenues actually collected and the theoretical tax
liability) amounted to 4.1% of the VAT total tax
liability in 2021, which was still below the EU-wide
gap of 5.4%. As part of its efforts to increase VAT
compliance, Hungary has implemented multiple
instruments to combat the missing trader intra-
community (MTIC) fraud (
151
) as well as one of the
most far-reaching electronic systems for
monitoring taxpayers. The VAT compliance gap in
Hungary has steadily and steeply declined,
although the latest decrease in 2021 may also be
due to COVID-19 effects. However, flash estimates
show that the gap might increase in 2022. (
152
)
RRP measures on the digital transformation of tax
compliance procedures, as part of the tax
simplification measures, aim to achieve
streamlined digital platforms and services. In this
(
151
) This highly complex form of tax fraud relies on the abuse of
the VAT rules for cross-border transactions in the EU.
(
152
) EU VAT Gap report, 2023, p.99.
80%
60%
40%
20%
0%
Hungary (total =
€414Bn)
Assets
85%
70%
91%
70%
30%
30%
EU27 (total =
€22,660Bn)
Hungary (total =
€59Bn)
EU27 (total =
€20,123Bn)
Liabilities
Non-SPEs
Special Purpose Entities (SPEs)
Source:
European Commission
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ANNEX 20: TABLE WITH ECONOMIC AND FINANCIAL INDICATORS
Table A20.1:Key
economic and financial indicators
2004-07 2008-12 2013-20
3.4
-0.8
2.8
.
0.4
2.8
1.9
0.1
4.2
16.6
13.8
2.0
0.0
1.3
.
.
.
2.3
6.9
4.2
5.5
4.5
7.9
4.8
4.0
-0.2
2.8
3.4
6.4
13.0
82.0
24.9
57.1
.
-3.4
22.5
1.9
.
4.4
-7.7
-1.2
-0.7
0.5
-92.1
-30.9
75.2
.
4.9
-2.4
-7.2
.
62.3
-2.2
0.5
-4.4
2.1
0.1
-2.0
-0.4
1.6
-0.2
0.6
0.1
-3.7
9.9
3.3
4.9
4.1
2.5
0.4
2.6
-0.6
-2.3
-0.4
5.3
0.8
110.5
36.5
74.0
9.8
1.5
23.1
2.9
-6.7
3.1
-1.1
4.5
-0.5
1.9
-102.9
-48.3
111.6
.
-5.2
-1.7
-4.1
.
77.7
3.5
2.6
6.3
4.3
5.6
3.7
-0.2
-0.7
0.8
1.2
0.8
0.9
4.9
4.0
1.8
2.3
4.1
1.4
3.3
-0.6
-1.1
-1.4
8.9
1.6
76.4
20.4
56.1
.
1.0
24.7
5.0
8.5
2.8
1.2
5.5
0.4
2.2
-59.1
-11.1
67.9
0.1
1.6
-1.9
-3.0
-3.4
73.3
2021
7.1
3.3
4.6
1.8
5.7
8.3
7.3
4.2
2.0
0.9
0.2
1.5
1.6
0.1
4.1
6.4
5.2
4.5
8.2
3.8
2.3
-3.9
0.0
0.4
12.6
12.9
80.9
21.1
59.8
2.4
-0.6
25.3
6.2
9.6
3.9
-4.1
0.2
-3.1
2.5
-53.6
-1.8
68.4
1.3
-6.1
-2.5
-7.2
-7.1
76.7
2022
4.6
3.1
7.1
2.9
1.4
11.4
10.8
4.4
-0.3
0.5
0.3
1.4
1.3
1.6
3.6
14.2
15.3
14.2
17.0
2.4
13.7
-0.5
0.2
-3.8
9.9
9.2
79.0
18.7
60.3
2.6
-4.4
24.4
4.3
5.2
4.7
-8.4
-4.4
-5.4
2.0
-52.1
-5.5
73.8
-1.3
-0.4
-2.9
-6.2
-7.0
74.1
2023
-0.9
2.1
-2.0
1.2
-7.4
0.9
-4.3
-2.8
-3.0
4.9
0.1
1.0
1.1
-1.4
4.1
14.7
17.0
16.8
14.0
0.2
15.2
0.4
9.6
13.3
.
.
.
.
.
.
-0.8
24.0
8.0
-7.7
4.2
0.3
5.1
6.2
0.9
-46.6
-7.5
68.5
5.0
-0.1
-1.7
-6.7
-6.0
73.5
forecast
2024
2025
2.4
3.5
2.2
2.5
4.0
0.8
1.6
3.0
3.5
2.6
0.0
-0.2
0.2
0.9
1.1
-1.2
4.5
5.3
4.1
4.7
11.7
1.3
9.2
3.7
1.2
.
.
.
.
.
.
.
0.1
24.3
7.2
.
.
0.0
.
-0.3
.
.
.
.
.
-0.5
.
-5.4
-4.9
74.3
4.1
1.5
8.2
5.3
6.9
4.4
0.0
-0.9
0.3
1.1
1.1
-0.2
4.0
3.8
3.7
4.3
7.7
2.8
4.8
0.9
1.8
.
.
.
.
.
.
.
-0.2
24.6
5.3
.
.
-1.5
.
0.0
.
.
.
.
.
1.6
.
-4.5
-4.4
73.8
Real GDP (y-o-y)
Potential growth (y-o-y)
Private consumption (y-o-y)
Public consumption (y-o-y)
Gross fixed capital formation (y-o-y)
Exports of goods and services (y-o-y)
Imports of goods and services (y-o-y)
Contribution to GDP growth:
Domestic demand (y-o-y)
Inventories (y-o-y)
Net exports (y-o-y)
Contribution to potential GDP growth:
Total Labour (hours) (y-o-y)
Capital accumulation (y-o-y)
Total factor productivity (y-o-y)
Output gap
Unemployment rate
GDP deflator (y-o-y)
Harmonised index of consumer prices (HICP, y-o-y)
HICP excluding energy and unprocessed food (y-o-y)
Nominal compensation per employee (y-o-y)
Labour productivity (real, hours worked, y-o-y)
Unit labour costs (ULC, whole economy, y-o-y)
Real unit labour costs (y-o-y)
Real effective exchange rate (ULC, y-o-y)
Real effective exchange rate (HICP, y-o-y)
Net savings rate of households (net saving as percentage of net disposable
income)
Private credit flow, consolidated (% of GDP)
Private sector debt, consolidated (% of GDP)
of which household debt, consolidated (% of GDP)
of which non-financial corporate debt, consolidated (% of GDP)
Gross non-performing debt (% of total debt instruments and total loans and
advances) (1)
Corporations, net lending (+) or net borrowing (-) (% of GDP)
Corporations, gross operating surplus (% of GDP)
Households, net lending (+) or net borrowing (-) (% of GDP)
Deflated house price index (y-o-y)
Residential investment (% of GDP)
Current account balance (% of GDP), balance of payments
Trade balance (% of GDP), balance of payments
Terms of trade of goods and services (y-o-y)
Capital account balance (% of GDP)
Net international investment position (% of GDP)
NENDI - NIIP excluding non-defaultable instruments (% of GDP) (2)
IIP liabilities excluding non-defaultable instruments (% of GDP) (2)
Export performance vs. advanced countries (% change over 5 years)
Export market share, goods and services (y-o-y)
Net FDI flows (% of GDP)
General government balance (% of GDP)
Structural budget balance (% of GDP)
General government gross debt (% of GDP)
(1) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches.
(2) NIIP excluding direct investment and portfolio equity shares.
Source:
Eurostat and ECB as of 2024-5-17, where available; European Commission for forecast figures (Spring forecast 2024).
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ANNEX 21: DEBT SUSTAINABILITY ANALYSIS
This annex assesses fiscal sustainability
risks for Hungary over the short, medium and
long term.
It follows the multi-dimensional
approach of the European Commission’s 2023
Debt Sustainability Monitor, updated based on the
Commission 2024 spring forecast.
1
–
Short-term risks to fiscal sustainability
are low.
The Commission’s early-detection
indicator (S0) does not point to any major short-
term fiscal risks (Table A21.2) (
153
). Government
gross financing needs are expected to decrease to
around 13% of GDP on average over 2024-2025
(Table A21.1, Table
1). Hungary’s credit rating
remains at the lower end of the investment grade.
2
–
Medium-term fiscal sustainability risks
appear medium.
The DSA baseline shows that the government
debt ratio is expected to remain broadly
stable at a relatively high level in the
medium term (at around 78% of GDP in
2034)
(Graph 1, Table 1) (
154
). The debt dynamics
are supported by the assumed neutral structural
primary balance (excluding changes in cost of
ageing) as of 2024. Compared to historical data,
this appears plausible, as more than half of past
fiscal positions were more stringent than the one
assumed in the baseline (Table A21.2) (
155
). The
debt increase is particularly driven by an
unfavourable and increasing snowball effect of
0.6% of GDP annually on average over
2027-2034, mainly linked to projected increases in
interest expenditure.
The baseline projections are stress-tested
against four alternative deterministic
scenarios to assess the impact of changes in
key assumptions relative to the baseline
(Graph 1). Under the
historical structural primary
balance (SPB) scenario
(i.e. the SPB returns to its
historical 15-year average of -0.1% of GDP) the
debt ratio would be higher than under the baseline
by about 1 pp. in 2034. Under the
adverse
interest-growth rate differential scenario
(i.e. the
interest-growth rate differential deteriorates by
1 pp. compared with the baseline), the debt ratio
would be higher than under the baseline by around
7 pps. in 2034. Under the
financial stress scenario
(i.e. interest rates temporarily increase by 1 pp.
compared with the baseline) the government debt
ratio would be higher by about 1 pp. in 2034.
Finally, under the
lower structural primary balance
scenario
(i.e.
the
projected
cumulative
improvement in the SPB over 2023-2024 is
halved) the debt ratio would be higher than under
the baseline by around 7 pps. in 2034.
The stochastic projections indicate medium
risk, pointing to the moderate sensitivity of
these projections to plausible unforeseen
events (
156
).
These stochastic simulations indicate
a 49% probability that the debt ratio will be higher
in 2028 than in 2023, implying medium risks given
the current relatively high debt level. In addition,
the uncertainty surrounding the baseline debt
projections (as measured by the difference
between the 10
th
and 90
th
debt distribution
percentiles) is high, reaching around 42 pps. of
GDP in five years’ time) (Graph
2).
3
–
Long-term fiscal sustainability risks
appear overall medium.
This assessment is
based on the combination of two fiscal gap
indicators, capturing the required fiscal effort to
distribution of SPBs observed in the past in the country,
taking into account all available data from 1980 to 2023.
(
156
) The stochastic projections show the joint impact on debt of
10,000
different shocks affecting the government’s
budgetary position, economic growth, interest rates and
exchange rates. This covers 80% of all the simulated debt
paths and therefore excludes tail events.
(
153
) The S0 is a composite indicator of short-term risk of fiscal
stress. It is based on a wide range of fiscal and financial-
competitiveness indicators that have proven to be a good
predictor of emerging fiscal stress in the past.
(
154
) The assumptions underlying
the Commission’s ‘no-fiscal
policy change’ baseline
include in particular: (i) a structural
primary balance, before changes in ageing costs, of 0.0% of
GDP from 2024 onwards; (ii) inflation converging linearly
towards the 10-year forward inflation-linked swap rate 10
years ahead (which refers to the 10-year inflation
expectations 10 years ahead); (iii) the nominal short- and
long-term interest rates on new and rolled over debt
converging linearly from current values to market-based
forward nominal rates by T+10; (iv) real GDP growth rates
from the Commission 2024 spring forecast, followed by the
EPC/OGWG ‘T+10 methodology projections between T+3 and
T+10 (average of 2.2%); (v) ageing costs in line with the
2024 Ageing Report (European Commission, Institutional
Paper 279, April 2024). For information on the methodology,
see the 2023 Debt Sustainability Monitor (European
Commission, Institutional Paper 271, March 2024).
(
155
) This assessment is based on the fiscal consolidation space
indicator, which measures the frequency with which a tighter
fiscal position than assumed in a given scenario has been
observed in the past. Technically, this consists in looking at
the percentile rank of the projected SPB within the
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stabilise debt (S2 indicator) and bring to 60% of
GDP (S1 indicator) over the long term (
157
). This
assessment is mainly driven by the projected
increase in ageing costs and, to a lesser extent, the
unfavourable initial budgetary position.
The S2 indicator points to medium fiscal
sustainability risks.
The indicator shows that,
relative to the baseline, the SPB would need to
improve by 4.9 pps. of GDP in 2025 to ensure debt
stabilisation over the long term. This result is
underpinned by the projected increase in ageing-
related costs (contribution of 4.3 pps.) and an
unfavourable initial budgetary position (0.6 pp.).
Ageing costs’ developments are primarily driven by
a projected increase in public pension expenditure
(3.5 pps.), followed by both health care (0.4 pp.)
and long-term care spending (0.3 pp.)
(Table A21.1, Table 2). As reforms in the RRP are
meant to improve the sustainability of the
Hungarian pension system, it will be important to
carefully monitor their implementation.
The S1 indicator points to medium fiscal
sustainability risks.
The indicator shows that the
country would need to further improve its fiscal
position by 3.3 pps. of GDP in 2025 to reduce its
debt to 60% of GDP by 2070. This result is mainly
driven by the projected increase in age-related
public spending (contribution of 2.5 pps.) and the
unfavourable initial budgetary position (0.6 pp.).
The current distance of the Hungarian government
debt ratio from the 60% reference value further
slightly increases the need for fiscal consolidation
(0.3 pp.) (Table A21.1, Table 2).
4 - Finally, several additional risk factors
need to be considered in the assessment.
Risk-increasing factors are mainly related to the
significant share of government debt held in
foreign currency. Some contingent liability risks
(
157
)The
S2 fiscal sustainability indicator measures the
permanent SPB adjustment in 2025 that would be required
to stabilise public debt in the long term. It is complemented
by the S1 indicator, which measures the permanent SPB
adjustment in 2025 to bring the debt ratio to 60% by 2070.
For both the S1 and S2 indicators, the risk assessment
depends
on the amount of fiscal consolidation needed: ‘high
risk’ if the required effort exceeds 6
%
of GDP, ‘medium risk’
if it is between 2% and 6%
of GDP, and ‘low risk’ if the effort
is negative or below 2% of GDP. The overall long-term risk
classification combines the risk categories derived from S1
and S2. S1 may notch up the risk category derived from S2 if
it signals a higher risk than S2. See the 2023 Debt
Sustainability Monitor for further details.
stemming from the high level of government
guarantees, as well as Hungary’s negative net
international investment position, pose additional
fiscal risks. For several years the debt
management agency has maintained favourable
conditions for redeeming retail government bonds
(amounting to some 20% of public debt) before
maturity, which risks raising gross financing needs
in times of financial stress.
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Table A21.1:Debt
sustainability analysis - Hungary
Table 1. Baseline debt projections
Gross debt ratio
(% of GDP)
Changes in the ratio
of which
Primary deficit
Snowball effect
Stock-flow adjustments
Gross financing needs (% of GDP)
% of GDP
90
80
70
60
50
40
30
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Historical SPB scenario
Financial stress scenario
Baseline
Lower SPB scenario
Adverse 'r-g' scenario
2021
74.4
-5.2
3.3
-6.7
-1.8
10.4
2022
72.5
-1.9
1.9
-5.1
1.3
8.2
2023
69.2
-3.3
1.2
-5.7
1.2
6.9
2024
68.1
-1.1
1.4
-2.3
-0.2
7.4
2025
66.7
-1.4
1.3
-2.5
-0.2
7.3
2026
66.1
-0.6
1.2
-1.8
0.0
7.4
2027
66.3
0.1
1.6
-1.5
0.0
7.9
2028
66.7
0.4
1.9
-1.5
0.0
8.4
2029
67.2
0.5
2.1
-1.6
0.0
8.7
2030
68.0
0.8
2.3
-1.5
0.0
9.1
2031
69.0
1.0
2.4
-1.4
0.0
9.4
2032
70.2
1.2
2.6
-1.3
0.0
9.8
2033
71.7
1.5
2.8
-1.3
0.0
10.3
2034
73.5
1.8
2.9
-1.1
0.0
10.7
Graph 1. Deterministic debt projections
% of GDP
85
80
75
70
65
60
55
50
45
40
2021
Graph 2. Stochastic debt projections 2024-2028
p90
p80
p60
p40
p20
p10
2022
2023
Median
2024
2025
2026
2027
2028
Baseline
Table 2. Breakdown of the S1 and S2 sustainability gap indicators
Overall index
(pps. of GDP)
of which
Initial budgetary position
Debt requirement
Ageing costs
of which
Pensions
Health care
Long-term care
Education
S1
4.7
0.9
0.2
3.7
2.5
0.7
0.6
-0.2
S2
6.3
1.6
4.7
3.1
0.9
0.9
-0.2
Source:
Commission services.
Table A21.2:Heat
map of fiscal sustainability risks - Hungary
Short term
Overall
(S0)
Medium term - Debt sustainability analysis (DSA)
Deterministic scenarios
Historical
Lower
Adverse
SPB
SPB
'r-g'
MEDIUM
74.3
2034
61%
MEDIUM
74.9
2034
62%
MEDIUM
78.4
2034
56%
Stochastic
projections
MEDIUM
HIGH
42%
29.3
MEDIUM
HIGH
Long term
Overall
(S1 + S2)
Overall
Overall
Baseline
MEDIUM
73.5
2034
56%
Financial
stress
MEDIUM
73.8
2034
56%
S2
S1
LOW
MEDIUM
Debt level (2034), % GDP
Debt peak year
Fiscal consolidation space
Probability of debt ratio exceeding in 2028 its 2023 level
Difference between 90th and 10th percentiles (pps. GDP)
(1) Debt level in 2034. Green: below 60% of GDP. Yellow: between 60% and 90%. Red: above 90%. (2) The debt peak year indicates whether debt is projected to increase overall over the next decade.
Green: debt peaks early. Yellow: peak towards the middle of the projection period. Red: late peak. (3) Fiscal consolidation space measures the share of past fiscal positions in the country that were more
stringent than the one assumed in the baseline. Green: high value, i.e. the assumed fiscal position is plausible by historical standards and leaves room for corrective measures if needed. Yellow:
intermediate. Red: low. (4) Probability of debt ratio exceeding in 2028 its 2023 level. Green: low probability. Yellow: intermediate. Red: high (also reflecting the initial debt level). (5) the difference
between the 90th and 10th percentiles measures uncertainty, based on the debt distribution under 10000 different shocks. Green, yellow and red cells indicate increasing uncertainty. (For further details
on the Commission's multidimensional approach, see the 2023 Debt Sustainability Monitor)
Source:
Commission services.
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