Hungary Defence and Security Report 2016
BMI View: Hungarian defence spending remains relatively modest compared to the Europe region as awhole, and has declined as a percentage of GDP over the last decade, reflecting the country's stablesecurity environment. We currently forecast the defence budget to remain around 0.9% of GDP in 2016,declining 1.6% y-o-y to USD1.08bn; however, we note that this figure may be revised upwards should thegovernment take action towards realising plans for improving conditions for armed forces personnel;increase participation in peacekeeping missions, expand military infrastructure or procure new equipmentand maintain a strong security presence at borders amid the ongoing migrant crisis. With a reasonableeconomic growth forecast over the medium term, and Hungary's commitment to increase militarycapabilities under NATO, we forecast defence expenditure to record growth from 2017, enabling Budapestto meet more of HDF's modernisation requirements - particularly in aerospace. Technologically advancedequipment such as aircraft, will continue to be sourced from abroad, as local manufacturers lack designand production capabilities. Meanwhile, with limited state investment into defence R&D, we expectHungarian defence exports to remain modest over our forecast period - although we do see some potentialfor growth in niche segments.
At present, we forecast military spending to remain around 0.9% of GDP in 2016, reaching USD1.08bn;however, we not that this figure may be revised upwards, as the Hungarian government has indicated thatit plans to raise the defence budget for the year by 20%. Specifically, in addition to operational expenses,the defence ministry needs to acquire air-to-surface weapons for its Gripen aircraft, develop infrastructureat the Papa airbase, modernise missile systems and replace two Gripen jets over the coming quarters. It isalso looking to replace its ageing helicopters and transport aircraft, as well as a range of ground-basedequipment, in the next few years.
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