Hungary

Public finances improve and leave room for fiscal stimulus

The latest figures for the Hungarian central public budget point to sound public finances. Cash flow figures point to a surplus of 2.7% of GDP in 2019, which is about 0.5% of GDP lower than in 2018. This cash flow surplus still has to be corrected for many items like local municipalities and EU funded projects. The cash flow figures indicate that revenues were substantially higher than expected thanks to higher VAT revenues as well as larger contributions from social fees, personal income taxes and excise duties. Hence, Hungarian public finances clearly benefited from the strong economic growth performance. Moreover, EU funding started to flow into the Hungarian budget in the second half of the year, as compensation for projects pre-financed by the Hungarian government. The final public deficit figure according to the EU standard methodology is expected by the end of March. Based on the current cash flow information, we project the Hungarian public deficit to reach 1.8% in 2019. Public debt to GDP is expected to moderate from 70.2% in 2018 to 67.5% in 2019.

For 2020 we believe the current Hungarian budget is conservative. A deficit around 1% of GDP could be reached which would further lower public debt to GDP to 64%. However, the key question is whether the Hungarian government will implement additional fiscal stimulus to boost the economy in the coming months. Such additional fiscal stimulus seems likely given the expected economic slowdown this year as well as the uncertainties surrounding the Hungarian economic outlook. Hence any policy change is likely to lead to a higher public deficit and a slower public debt ratio decline.