Part I — The situation

On 24 and 25 September 2026 two independent pieces of news signalled at the same time that the room for manoeuvre of economic policy is narrowing. According to the September Inflation Report of the Magyar Nemzeti Bank (MNB, the central bank of Hungary), within Europe the summer drought hit the Hungarian economy hardest. Agricultural value added may fall by as much as 15 per cent this year, which will hold back the growth of gross domestic product (GDP) by 0.4 percentage points (pp). The central bank has therefore lowered its 2026 growth forecast from 2.0 to 1.8 per cent. The maize harvest may fall short of the average of the previous five years by 51 per cent, rapeseed by 26 per cent and wheat by nearly 22 per cent — for all three crops a worse result is expected than in the 2022 drought year. On the same day the Government Debt Management Agency (ÁKK), the state institution that organises the financing of the public debt, published its latest benchmark yields. According to these, the yields on 5- and 10-year government bonds rose by 19 basis points (0.19 percentage points) in a single day, to 5.90 and 5.85 per cent respectively. Short maturities did not move: the yield curve, that is, the line connecting the interest rates on loans of different maturities, became steeper.

The two pieces of news fit into a longer series. Two days earlier the MNB announced that from 2028 it will lower the inflation target from 3 to 2.5 per cent — in August (A third rate cut, 1.2 per cent inflation) MIAK asked for a public impact analysis of this change of framework. The amended 2026 budget bill contains a 500 billion forint Contingency Fund, partly precisely for the costs of the drought; on 8 September (The Contingency Fund and the health surplus) MIAK asked for an activation rule to go with it. MIAK discussed the systemic shortcomings of water management in June (Heatwave, drought and drinking-water crisis), and the distributional questions of the 2027 adjustment yesterday (The 2027 budget: many small steps). According to Portfolio, the main cause of the yield jump is external: the 10-year US yield has risen above 5.1 per cent, a level not seen since 2007. The market is pricing an increasing probability of a US rate hike in October, and the price of Brent crude is above 105 dollars.

MIAK’s reading: the two shocks are different in nature, but they burden the same budget. The drought is a supply shock — a smaller harvest, lower income, lower tax revenue — for which stimulating demand is no cure. The rise in yields is a financial shock, most of which comes from outside, but how much of it remains permanently in the Hungarian interest-rate level depends on domestic fiscal credibility. The same answer applies to both: rules fixed in advance, and public calculations from which both the market and the voter can see how much the shock costs and who bears it.

Part II — Grounding in the literature

Three sources provide the interpretive framework. In his main work, The General Theory of Employment, Interest and Money, John Maynard Keynes (British economist, founder of modern macroeconomics) offers two ideas directly applicable to the current situation. On the one hand, he regards harvest fluctuation as one of the greatest drivers of the economic cycle where a country depends on its own harvest and where the world market does not smooth out the local shortfall. On the other hand, he considers the long-term interest rate a “conventional” phenomenon: its level is set by what the market believes to be lasting — which is why credibility is itself an instrument of economic policy. According to Nicholas Stern (British economist, former chief economist of the World Bank, author of the climate-economics report for the UK Treasury), the costs of droughts and extreme weather are growing fast. The burden of adaptation cannot be left to the market; the state must provide a clear framework for it. The October 2025 World Economic Outlook of the International Monetary Fund (IMF) lists the rise of long-term government bond yields among the main global risks, and urges a credible, medium-term fiscal framework that protects the spending that shields vulnerable households. The detailed discussion of the literature — author by author, with quotations — can be found in section 6.4 Literature in detail.

Part III — MIAK’s concrete proposal

MIAK proposes three measurable measures. The first responds to the direct damage caused by the drought, the second to the budgetary risk of the yield shock, and the third to ensuring that the next drought does not catch economic planning unprepared.

3.1 Rule-based drought relief with an adaptation condition (rule to be promulgated by 30 November 2026, first payments by 31 January 2027)

MIAK proposes that the Government should carry out this year’s drought relief not through case-by-case decisions but according to a rule promulgated in advance that is triggered automatically. The essence of the rule is an objective threshold: if in a district the official harvest estimate for the main arable crops falls below a fixed share of the average of the previous five years, the farmers there become eligible for relief without discretionary, application-based assessment. The yardstick is the harvest estimate of the Hungarian Central Statistical Office (KSH) and the drought monitoring of the national meteorological service. The payment formula, its upper cap and the 60-day payment deadline should be public. If the Contingency Fund covers it, it should appear there as a separate, itemised line, in line with the data-driven budgeting principle of G1. The second condition is adaptation. Whoever receives relief should commit to implementing a water-retention or irrigation investment, or taking out agricultural insurance, within three years. Otherwise, in the next drought they are entitled only to a reduced level of help. This addresses the distortion that MIAK’s agricultural background material also describes: if the state always pays for the damage, the incentive to irrigate weakens. The logic of the G15 anti-cyclical fiscal stabiliser — state spending in a downturn, building reserves in an upswing — applies here in a targeted way: not general demand stimulus, but partial replacement of lost income. According to Stern’s proposition (see 6.4.2), the state’s task is to provide the framework for adaptation, not to compensate damage indefinitely. The list of beneficiaries should be searchable on the MG2 agricultural data platform.

3.2 Yield-sensitivity and financing annex to the 2027 budget (submitted together with the bill, with quarterly updates)

MIAK proposes that the Ministry of Finance attach a short, machine-readable annex on interest-rate risk to the 2027 budget bill. The annex should show how much interest expenditure in 2027 and 2028 would increase if yields along the whole curve remained 50 or 100 basis points higher than planned. It should also include what share of the debt matures or reprices in the next 12 and 24 months. According to Portfolio, the share of foreign investors in the forint government bond market rose to 34 per cent by the end of August. Because of this exposure, an external yield shock can spill over quickly into the domestic market, so this too belongs in the annex. Alongside the annex, the Government should set out the medium-term deficit and debt path, and which spending it protects and where it seeks offsetting measures if yields rise persistently. The Fiscal Council should give its opinion on the annex. The proposal is a direct application of the G23 public-debt sustainability framework. The IMF (see 6.4.3) stresses precisely that a fiscal strategy built on favourable baseline assumptions is itself a source of vulnerability. And according to Keynes (see 6.4.1), the level of the long-term interest rate is set by what the market believes to be lasting — a public sensitivity calculation strengthens that belief. Credibility matters more here than the speed of the adjustment.

3.3 Building drought risk into the macro path (first drought-risk report by 30 June 2027, drought module of the climate-economic model by the end of 2027)

This year’s drought is not a one-off exception: MIAK wrote about drought in spring and in summer as well, and this is the second severe drought year in four years. MIAK proposes that the macroeconomic forecast of the Ministry of Finance should in future contain a separate, quantified drought scenario. It should show how much a harvest shortfall on the scale of 2022 or 2026 would reduce growth, tax revenue and agricultural exports, and how much relief spending it would entail. This requires a first, drought-focused module of the K9 domestic climate-economic model, linking harvest-estimate and water-management data with budget planning. The data should be public on the MG2 platform, and the soil-moisture measurements of precision farming within the MG1 programme. According to Keynes’s observation (see 6.4.1), the world market smooths out the harvest fluctuations of individual countries. This now holds true for food prices: according to the MNB, the price effect of this year’s drought may be more moderate than in 2022. The world market, however, does not smooth out the loss of domestic output and income — planning has to deal with that.

The common principle of the three proposals is that the way of handling a shock should not be invented at the moment of the shock. A rule fixed in advance is faster and cheaper, and less exposed to ad hoc political pressure. And a public calculation — in Keynes’s term — also steers the market’s “convention” towards the credible path.

Part IV — Expected impacts and risks

Dimension Expected impact Risk
Agriculture Affected farmers receive help quickly, according to a predictable rule; the incentive for irrigation and insurance grows The district threshold does not capture differences between individual fields; those who stay below the threshold may feel it is unfair
Budget The upper cap of drought relief is known in advance; interest-rate risk is visible in the bill The adverse scenario of the public sensitivity calculation may appear as a “prophecy” in political debate
Financial markets A transparent path may reduce the Hungarian risk premium (spread), that is, the extra yield the state pays over the German state The spread is currently driven mainly by external factors; the annex does not offset these, it can only narrow the domestic excess
Climate adaptation Water retention and irrigation become an investment condition, not a voluntary commitment For small farms the investment condition is hard to meet; without support they may be squeezed out
Planning The drought becomes a quantified scenario in the macro path, not a surprise The model’s parameters are debatable; the result of a climate model does not replace the political decision

The main trade-off is the strictness of drought relief. If the adaptation condition is too lenient, the system continues to subsidise the lack of irrigation. If it is too strict, it squeezes out small farms. MIAK therefore proposes a three-year grace period and a condition that can be met through insurance instead, and investment support for small farms. The second question is the publicity of the yield risk. The fear that a public “adverse scenario” would itself unsettle the market is understandable. Experience shows, however, that the market prices hidden risk more expensively than risk that is spelled out. According to Portfolio, domestic news alone would not justify such a large rise in yields — which is exactly why it is worth the Government showing with numbers how large the domestic excess risk really is. The third question is timing: the rule and the annex must be fixed before the adoption of the 2027 budget, because afterwards only case-by-case decisions remain.

Part V — Measurability and summary

5.1 What is worth tracking? (proposed KPIs)

MIAK proposes the following key performance indicators (KPIs) for tracking:

  • Payment lead time: the median number of days from the submission of relief claims to payment. Proposed target: at most 60 days.
  • Adaptation rate: what percentage of the farms receiving relief implement a water-retention or irrigation investment, or take out agricultural insurance, within three years. It is worth publishing annually, broken down by district.
  • Risk premium: the yield difference between the 10-year Hungarian and the 10-year German government bond. On 24 September it was around 230 basis points (5.85 and 3.55 per cent). It is worth tracking whether the difference narrows once the global shock has passed.
  • Existence and updating of the yield-sensitivity annex: whether it was published together with the 2027 bill, and whether it is updated quarterly. Proposed target: yes, four updates in 2027.
  • Drought scenario in the macro path: whether, from mid-2027, the Ministry of Finance’s forecast contains a quantified drought scenario with its growth, revenue and expenditure impact.

5.2 Summary

MIAK’s request is twofold. Drought relief should take place according to a rule promulgated in advance and tied to an objective threshold, with fast payment and an adaptation condition. And the 2027 budget should publicly account for interest-rate risk, and set out the medium-term path to which the Government will adhere even in times of a yield shock. The two are connected: a budget that prices in both the drought and the rise in interest rates in advance is less forced into improvisation, and the market also sees it as more credible.

Two of MIAK’s foundational values are at stake here. Data-drivenness, because the handling of the drought and of the yield shock currently relies on after-the-fact, case-by-case decisions. Yet the data of the harvest estimate, the drought monitoring and the yield curve are already available today; it is only the decision that is not tied to them. And transparency, because the interest-rate risk and the relief rule strengthen trust only if the market and the voter see the same calculation.

Part VI — Justifications and further sources

6.1 Press framing across the spectrum

In the economic band, Portfolio framed the rise in yields almost exclusively as a market, international phenomenon. It put the US bond-market sell-off, expectations of further rate hikes by the US central bank (Fed) and the oil price at the centre, and stated explicitly that domestic news alone would not justify the move. At the same time it warned that many favourable expectations are already built into prices, so in case of unfavourable news a rapid repricing may follow. Its analysis of the MNB’s inflation target presented the technical background of the decision and a regional comparison, and also quoted a critical economist’s voice: the price caps and the system of utility-cost reduction operating through prices should be phased out first. The analysis of the forint exchange rate examined the possibility of a breakout from the narrow band (the article was not publicly downloadable).

In the public-affairs and left-liberal band, Telex highlighted the macro impact of the drought and reported the details of the central bank’s estimate — harvest data, European comparison, food-price risk — without evaluative commentary. HVG’s subscription analysis examined the short-term “sacrifice” of lowering the inflation target, and concluded that during the transition the Government cannot hand out money and cannot push wage increases (the article was not publicly downloadable). 24.hu reported the exchange rate in a short MTI news item. 444.hu presented Equilor’s euro-adoption analysis, according to which the greatest difficulty lies in the budgetary conditions; the article also discussed the ownership background of the analysis firm in detail. A combined, budgetary reading of the drought and the rise in yields did not appear in any of the papers.

In the pro-government conservative band, Magyar Nemzet framed GKI’s September business-climate index as a yardstick of the Tisza government’s performance. The paper stressed that although the index did not deteriorate further, in all four sectors more companies plan layoffs than hiring, and the share of those planning price increases is growing. The drought and the rise in yields were not in the paper’s economic focus that day. From MIAK’s point of view this framing is interesting because the intention to cut headcount in construction and the rise in long-term yields point in the same direction: more expensive financing hits the investment-sensitive sectors first.

6.2 Facts and data

Data Value Source
Expected fall in agricultural value added in 2026 up to 15% MNB Inflation Report, September 2026 (Telex, 25 September 2026)
Impact of the drought on GDP growth −0.4 percentage points MNB, Telex, 25 September 2026
The MNB’s 2026 GDP forecast 2.0% (early-summer report) → 1.8% (September) MNB, Telex, 25 September 2026
Harvest compared with the average of the previous five years maize −51%, rapeseed −26%, wheat nearly −22% MNB, Telex, 25 September 2026
One-day change in benchmark yields (24 September) 5- and 10-year +19, 15-year +18, 20-year +17 basis points; 3-month and 1-year −1 basis point ÁKK, Portfolio, 24 September 2026
Level of benchmark yields (24 September) 5-year 5.90%, 10-year 5.85%, 20-year 5.91% ÁKK, Portfolio, 24 September 2026
One-month rise in yields 3-year +45, 5-year +51, 10-year +36 basis points ÁKK, Portfolio, 24 September 2026
10-year US government bond yield 5.11% (Wednesday), 5.145% (Thursday) — a level not seen since 2007 Portfolio, 24 September 2026
Market probability of an October Fed rate hike nearly 70% (50% a week earlier) Portfolio, 24 September 2026
10-year German government bond yield around 3.55% Portfolio, 24 September 2026
Share of foreigners in the forint government bond market 34% (end of August) Portfolio, 24 September 2026
MNB inflation target 3% → 2.5% from 1 January 2028, ±1 percentage point band unchanged MNB, Portfolio and HVG, 24 September 2026
Number of rate-setting meetings from 2027 8 instead of 12 per year MNB, Portfolio, 24 September 2026
Euro exchange rate (25 September, 7 a.m.) 365.50 forints (366.55 the previous evening) MTI, 24.hu, 25 September 2026
GKI business-climate index, September +1 point; 12% of companies plan headcount cuts, 8% plan expansion; 18% plan price increases GKI, Magyar Nemzet, 25 September 2026
Government calculation without measures (as presented by Equilor) deficit 4% of GDP in 2029, 3% in 2030; debt peaks at 79.9% in 2028 Equilor, 444.hu, 24 September 2026

Two remarks belong to the numbers. First, the structure of the rise in yields is telling: short maturities did not move, but long ones did. This indicates that it is not the expected path of the central bank rate that has changed, but how much extra yield investors demand for the risk of the long maturity. This extra is directly influenced by domestic fiscal credibility. Second, the GDP impact of the drought is not the same as the budgetary impact: the lost harvest affects tax revenue, the relief affects expenditure. The two effects therefore jointly burden the 2027 adjustment, whose size HVG’s analysis of 21 September estimated at around 2,500 billion forints.

6.3 Policy dimensions

  • Economy (programme points) — rule-based, targeted stabilisation; the sustainability of public debt and the publicity of interest-rate risk; an itemised, machine-readable budget; preparedness for external energy-price shocks (programme point ID: G15, G23, G1, G25);
  • Agriculture (programme points and background material) — public harvest and subsidy data, precision and water-saving farming, addressing the incentive distortion between irrigation and drought relief (programme point ID: MG2, MG1);
  • Environment and climate (programme points) — building drought damage into the domestic climate-economic model and into budget planning, energy-market shock resilience (programme point ID: K9, K7).

6.4 Literature in detail

6.4.1 John Maynard Keynes: The General Theory of Employment, Interest and Money

Two distant passages of Keynes’s 1936 main work illuminate this week’s two pieces of news. In the chapter on the trade cycle, Keynes recalls William Stanley Jevons’s 19th-century theory, which traced the alternation of boom and slump back to the abundance or scarcity of the harvest. Keynes considers this reasonable, but adds: in the modern world agricultural fluctuation carries less weight, because agricultural production is a smaller part of output, and because the world market evens out the good and bad years of individual countries. This fits the Hungarian case precisely: according to the MNB, the food-price effect of this year’s drought is more moderate than in 2022 because at EU level the drought was milder. The world market, however, does not replace the loss of the domestic harvest and income. The other passage is about the rate of interest:

“It might be more accurate, perhaps, to say that the rate of interest is a highly conventional, rather than a highly psychological, phenomenon. For its actual value is largely governed by the prevailing view as to what its value is expected to be.”

In the same place Keynes also writes that a monetary policy which appears experimental or easily liable to change cannot substantially bring down the long-term rate of interest, whereas one which appears reasonable, in the public interest and durable may easily succeed. Translated to Hungarian long-term yields: domestic policy cannot stop the external shock, but it can influence what level the market regards as “normal” once the shock has passed. This is why MIAK proposes, in point 3.2, the public yield-sensitivity annex and the fixed medium-term path.

📖 Source: John Maynard Keynes: The General Theory of Employment, Interest and Money (1936)

6.4.2 Nicholas Stern: The Economics of Climate Change

According to the report, commissioned by the UK Treasury, climate change intensifies the water cycle, so droughts and floods become more frequent and more severe. The damage from extreme weather is already high and growing fast. The report also gives a European example: the 2003 heatwave and drought caused 15 billion dollars of forestry and agricultural damage in Portugal, Spain and France. It also stresses that the agricultural impact depends heavily on adaptation — on whether farming relies on rain or on irrigation — and that earlier estimates often failed to take short-term weather extremes into account. It describes the role of the state as follows:

“Adaptation will reduce the costs and disruption caused by climate change. Governments can help adaptation by providing information and a clear policy framework, so that individuals and firms can respond to market signals.”

Stern explicitly regards risk-based insurance as a market signal that encourages better risk management, and for the poorest — who are least able to afford protection — he considers a financial safety net necessary. Applied to Hungarian drought relief: help in itself is not adaptation. If relief is not tied to water retention, irrigation or insurance, the next drought will find the farms in the same place. This is why MIAK, in point 3.1, links payment to an adaptation condition.

📖 Source: Nicholas Stern: The Economics of Climate Change — The Stern Review (Cambridge University Press / HM Treasury, 2007)

6.4.3 International Monetary Fund: World Economic Outlook 2025

Among the global risks, the IMF’s October 2025 report gives prominence to the interaction between fiscal vulnerabilities and financial markets. Following the rise in long-term government bond yields in advanced economies, the market may react abruptly to fiscal weaknesses. Where a large part of the debt must be rolled over each year, higher yields quickly increase interest expenditure and may crowd out other important spending — including investment and support for households exposed to shocks. One of the report’s scenarios examines precisely what happens if the extra yield demanded for the long maturity (the term premium) rises by 100 basis points over ten years. The report’s recommendation:

“It is more important than ever for countries to implement credible medium-term fiscal consolidation aimed at rebuilding buffers while protecting spending that supports the vulnerable.”

The report adds that fiscal strategies built on favourable baseline assumptions or on exceptional growth are themselves a source of vulnerability. It recommends a credible medium-term framework, with more flexible rules and strong, independent fiscal institutions, which also allows for counter-cyclical fiscal policy. Two conclusions follow for the Hungarian case. The 2027 budget should not rest on a single, favourable yield path, but should also show the unfavourable one (3.2). And the growth forecast should account for the climate shock, as the MNB also did when, partly because of the drought, it lowered its expectation by 0.2 percentage points (3.3).

📖 Source: International Monetary Fund: World Economic Outlook — Global Economy in Flux, Prospects Remain Dim (October 2025)

6.5 International comparison

The rise in yields is global: according to Portfolio, the 10-year US yield is at a level not seen since 2007, the German 10-year yield is a few basis points from its 17-year high, and the Japanese has risen to around a thirty-year high. In this environment the rise in Hungarian yields is not unique. The risk premium, however — that is, the difference between the Hungarian and German yields, which measures how much more the market demands from the Hungarian state — depends on domestic factors. As regards inflation targets, according to Portfolio’s summary the target of the Polish and Romanian central banks is 2.5 per cent, that of the Czech central bank 2 per cent, and that of the European Central Bank 2 per cent. With the MNB’s decision Hungary moves closer to this group. On the drought, according to the MNB analysis reported by Telex, at EU level this year’s drought was milder than in 2022, hitting only the Carpathian Basin and France more severely. According to the European Commission’s yield estimate, it is the Hungarian harvest of wheat and maize that falls furthest short of the five-year average. This is the Keynesian “equalising” world-market effect, which protects prices but not domestic income. The 2003 south-west European drought — with 15 billion dollars of forestry and agricultural damage according to Stern’s data — shows that advanced economies are not immune to such shocks either. Stern therefore recommends public–private cooperation on climate insurance and risk-based insurance, which encourages adaptation through a price signal.

Economy

  • G15 — Anti-cyclical fiscal stabiliser
  • G23 — Public-debt sustainability framework
  • G1 — Data-driven budget
  • G25 — Energy-price shock preparedness plan

Agriculture

  • MG2 — Agricultural data platform
  • MG1 — Precision agriculture programme

Environment and climate

  • K9 — Domestic integrated climate-economic model (DICE-MAGYAR)
  • K7 — Energy-market shock resilience

Proposed new programme point: Rule-based drought relief — automatically triggered payment tied to an objective harvest-estimate threshold, with an adaptation condition (water retention, irrigation or agricultural insurance) — for the Agriculture area.

6.7 List of sources

Press sources (MIAK press monitor, 25 September 2026 — topic 2):

Knowledge-base references (literature):

  • 📖 John Maynard Keynes: The General Theory of Employment, Interest and Money (1936)
  • 📖 Nicholas Stern: The Economics of Climate Change — The Stern Review (2007)
  • 📖 International Monetary Fund: World Economic Outlook — Global Economy in Flux, Prospects Remain Dim (October 2025)

MIAK internal materials:

  • MIAK policy area: Economy (programme points; programme point ID: G15, G23, G1, G25)
  • MIAK policy area: Agriculture (programme points; programme point ID: MG2, MG1)
  • MIAK policy area: Agriculture (background material — the links between irrigation, drought and insurance)
  • MIAK policy area: Environment and climate (programme points; programme point ID: K9, K7)
  • MIAK press monitor, 25 September 2026 — topic 2, score: 87/100

Supplementary public data sources:

  • MNB — Inflation Report, September 2026
  • ÁKK — daily benchmark yields, maturity and ownership structure
  • KSH — agricultural harvest estimate
  • European Commission — EU crop-yield estimate (MARS)
  • HungaroMet — drought monitoring
  • GKI — monthly business-climate index

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