Hungary’s state budget deficit stood at 1.7 trillion forints (EUR 4.3 billion) at the end of February, about 70% of the full-year target of 2.5 trillion forints.
The Finance ministry admitted on 8 March that the 2.9% deficit target was unachievable, explaining the reasons for the second-largest monthly budget deficit, which came after a HUF 54.4 billion surplus in January.
The central budget deficit at the end of the month totalled HUF 1.76 trillion, with social security funds in a HUF 23.5 billion deficit and individual state funds in a HUF 79.0 billion deficit.
The ministry stressed that budget revenues last month were “several hundred billion forints” lower than the monthly average due to VAT refunds to companies and the impact of 13 months of pension payments, which reached 1.0 trillion forints in February, bringing pension payments for January-February to 1.4 trillion forints.
Interest expenses, which include large payments on retail government securities, totalled HUF 855 billion.
In its statement, the ministry added that the deficit will be 4.5 per cent of GDP in 2024, 3.7 per cent in 2025 and 2.9 per cent in 2026, the ministry said. The government revised the deficit target in the communiqué without stating what the original deficit target was.
Analysts had said that fiscal spending was overstretched because of the seasonal factor in VAT refunds, but the February figure is on a completely different level. While VAT repayments may hit targets this year, the deterioration in the budget was mainly due to excessive interest payments.
Last year, Hungary’s debt costs stood at 4.3 per cent of GDP in 2023, compared with 3.8 per cent in Italy and 3.5 per cent in Greece, two countries with much higher debt burdens, and are expected to reach 4.5 per cent in 2024 because of the budget’s huge financing needs, but more importantly, because of soaring interest rates as a result of runaway inflation in 2023.
Hungarian households are stocking up on popular government securities, which are yielding more than 18% per annum this year.
In the budget approved in the summer, the government assumed the economy would grow 4 per cent this year, but that figure was revised downward to 3.6 per cent in December. The latest forecasts point to lower growth, given weakening economic growth in the Eurozone.
There are also risks to revenue targets from inflation. The latest official budget puts the figure at 6 per cent, but this could be lower if disinflation continues and consumer demand is lower than the government expects.
ING says there is a significant risk to this year’s budget even with the revised deficit target.
In a surprise move, the government has started preparing a draft budget for 2025, which, in line with practice in previous years, could be passed in the summer, but analysts say the 2024 budget is already in the crapper and needs to be revised given the weak macro outlook.
