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Pandemic Causes Second Largest Monthly Budget Deficit in History

Róbert Panyi 2020.07.10.

As a result of the pandemic, the budget deficit for June reached HUF 785.5 billion (EUR 2.2 bn) – the second highest monthly deficit value since December 2016. As a result, Hungary’s total budget deficit, excluding local councils, was HUF 1.837 billion (EUR 5.16 bn) at the end of June, according to the data released by the Finance Ministry. This value is already five times more than the whole estimated deficit projection for 2020.

Hungary’s budget deficit has been increasing steadily since the beginning of the pandemic, reaching a total of 1.837 billion forints for the first half of 2020. This means that due to the latest coronavirus-related expenses, the budget deficit for the 12 months ending in June reached 2.666 billion forints, the equivalent of 5.5% of the country’s GDP for the same period. The projections of the Finance Ministry still estimate a total yearly budget deficit of 3.8% of the GDP by the end of 2020. However, a recent analysis by Portfolio.hu argues that these estimates may be overly optimistic and the value may potentially reach 5%.

The rise in the June deficit was mainly the result of increases in healthcare spending: by the end of June, purchases related to healthcare amounted to a total of HUF 520 billion. This does not include the payment of coronavirus-related benefits promised to essential healthcare workers for July. The total budget deficit also reflects increased spending in other areas of the public sector aiming to help the recovery of the Hungarian economy.

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Although the government remains optimistic about the state of the Hungarian economy and trust in the economic recovery has already started to rebound, these sentiments may be subject to significant changes – depending on the exact length and severity of the coronavirus crisis and the impact of a potential second wave.

The target deficit level set by the Finance Ministry has been revised continuously over the last few months. The calculations of the 2020 national budget plan accepted in 2019 featured an estimated annual deficit of HUF 367 billion. This value was increased to 1.601 billion in April, then 1.890 billion in May. According to Portfolio.hu, this projection is very likely to change, as the deficit for the first half of the year has already reached HUF 1.837 billion and the second half of 2020 is likely to produce an additional HUF 400-800 billion of deficit.

However, according to the Finance Ministry, these values may likely decrease when the EU releases the funds promised at the beginning of the pandemic to support the economy of its member states.

In the featured photo illustration: Finance Minister Mihály Varga. Photo by Zoltán Máthé/MTI