Budapest Municipality Could Go Bankrupt by End of 2025

In the absence of action, the Budapest Municipality may become insolvent in the fourth quarter of 2025, that could endanger the provision of public services, concluded the State Audit Office (SAO) in its report on the budgetary and financial status of the capital’s local government.

The report recalls that the Budapest Municipality was unable to resolve its financial difficulties independently and requested government support to stabilize its liquidity. Negotiations with the government began in June 2025. According to the SAO, the municipality’s steadily worsening financial situation since 2020 was caused not only by the COVID-19 pandemic, the surge in energy prices, and rising inflation, but also by the increasing burden of mandatory budgetary contributions.

The analysis states that Budapest’s liquidity problems worsened significantly in 2025, making it increasingly difficult to meet payment obligations.

It adds that the municipality’s liquidity position has been deteriorating since 2022, and by August 2025, it is expected that even the increased overdraft credit line will be almost entirely used up to cover payments.

It is noted that between 2019 and 2024, the municipality accumulated a total budget deficit of 193.4 billion forints (495.8 million euros), further increased by a solidarity contribution of 45.7 billion forints (117.2 million euros) that the capital paid to the state but did not record as a budgetary expenditure.

At the end of 2019, the municipality had total savings of 214.2 billion forints (549.5 million euros) – including cash, investment, and marketable securities – which were almost entirely used up by the end of 2022. Since 2023, the municipality has been dealing with its liquidity problems by postponing certain expenses to the next year, reallocating funds previously set aside for other purposes, and drawing back funds from its business entities.

The report states that in 2024–2025, the municipality implemented short-term measures aimed at temporarily managing liquidity problems to maintain solvency. However, it did not take substantial steps to improve the efficiency of public service provision or to ensure the long-term balance of its budgetary situation.

The report also highlights that the purchase of the Rákosrendező properties and the planned project pose further financial risks. It states that the 2025 budget does not include well-founded sources for all planned expenditures, making its implementation uncertain and risky.

The municipality’s actions to improve its financial standing have been insufficient to restore budgetary balance. No substantive measures were identified that would ensure the efficient delivery of public services at the same level but at lower cost, the State Audit Office concluded.

It also reported that the solidarity contribution to the state significantly increased in accordance with legal regulations. It rose from 10.0 billion forints (25.7 million euros) in 2019 to 69.5 billion forints (178.4 million euros) in 2024, amounting to a total of 230.2 billion forints (590.8 million euros) in payments over the six-year period analyzed.

Regarding the municipal budget adopted on December 18, 2024, the SAO found that some revenue and expenditure items were not fully substantiated. The Curia of Hungary ruled that the amount planned for the solidarity contribution in the 2025 municipal budget, and therefore the total expenditure, violated other laws.

In response, the Budapest Municipality modified the budget on June 30 in line with the Curia’s ruling.

The SAO concluded that the projected revenue of 51.7 billion forints (132.7 million euros), which was supposed to cover the solidarity contribution in the revised budget, was not economically sound, since the municipality did not have a legally binding court decision confirming reimbursement of the solidarity contribution.

Budapest Mayor Gergely Karácsony responded to the recent report, warning that the Hungarian government’s financial policies toward Budapest could push the city into insolvency. He stressed that “this is not a threat but an economic reality,” and warned that if Budapest goes bankrupt, it could negatively impact the country as a whole.

The Mayor criticized the government’s lack of response to the city’s call for urgent talks and said they are running out of time and patience. He also rejected the idea that key city assets should be sold off or sacrificed due to financial pressures, specifically referencing the Rákosrendező development site, which he insists should serve Budapest’s future, not government-connected interests.

Via MTI, Featured image: Pixabay

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