Hungary: A Return to Investment Grade Status Could Restore FDI Inflows

Hungary regained its investment grade status in 2016, which will result in a stable financing landscape for businesses operating in the country. As part of a struggle to reduce the budget deficit and dodge another International Monetary Fund (IMF) bailout, in 2014, the Hungarian government launched a new range of extraordinary taxes and surcharges on specific industries (mostly foreign-owned), including media, tobacco and retail. This was one of the major reasons causing FDI intensity to decline from 4.5% of GDP in 2014 to 1.0% in 2015, illustrating the reducing importance of FDI as a driver of the economy. Although the sector-specific taxes did put off potential investors, it helped bring about noteworthy improvement in the country’s public finances, as the budget deficit declined from 2.1% of GDP in 2014 to only 0.7% in 2016. Improving public finances will enhance the country’s overall investment appeal and restore foreign investment into the country.

Investment Profile of Hungary

Source: Euromonitor International from national statistics/OECD/UN/IMF/IFS

Note: Data for 2017 is forecast