Hungary: Government opens its purse in December
After a remarkably careful budget management through eleven months, the government opened its purse and spent big time in the last month of the year, putting the 2019 cash-flow deficit above the target
The December year-to-date balance of the cash flow-based government budget showed a HUF 1219bn deficit, 122% of the full-year target. It comes as a huge surprise after the November figure was still at 77% of the target. It means that the monthly deficit came in at HUF 452.7bn, so the government spent big time in the last month of 2019 after an eleven-month careful navigation.
Cash-flow based year-to-date central budget balance
The government closed the year almost in balance when it comes to the EU projects. After spending HUF 1.56tr from the budget on EU-related projects in 2019 as a whole, the inflow from Brussels reached HUF 1.47tr. These figures also mean that the net inflow was positive (HUF 97.1bn) in December, so the non-EU related spending is responsible for the significant jump in the year-end deficit figure. Unfortunately, the government did not share any details about the monthly figure, but in our view, the new family-related programmes (housing, car buying) might be responsible for one part. Other than that, one-off payments for armed forces and wage settlements in other sectors also played a major role, while the debt settlement of hospitals (around HUF 70bn) might also be responsible partially for the monthly deficit.
The 12-month rolling cash-flow deficit
When it comes to the underlying processes, the budget performed extremely well in 2019 apart from the year-end closing. Revenues from personal income tax, payroll tax, value added tax all came in significantly higher than a year ago and above expectations. In our view, the government saw an opportunity to spend in the year-end due to the strong fundamentals, projecting the Maastricht-based deficit (targeting 1.8% of GDP) well in reach so having an opportunity to stretch the cash-flow deficit.
Taking into consideration the government’s track record in recent years, we can be almost sure that the 1.8% deficit-to-GDP target will be met despite the higher cash-flow deficit. The official balance according to the EU methodology will be released by the Statistical Office in March. But before this, we will have a preliminary data by the central bank on 17 February.
This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
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