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Hungary State Debt to GDP Falls to Pre-Financial Crisis Level

Péter Cseresnyés 2019.08.27.

Hungary’s gross state debt has fallen below 70% of the GDP, writes pro-government daily Magyar Nemzet, referring to data provided by the National Bank of Hungary. The last time the index stood this low was in 2008 right before the Gyurcsány government had to take an immense loan from the IMF to mitigate the effects of the financial crisis. While the state debt is continuously increasing, mainly due to the strong nominal GDP growth, the ratio itself has been declining in the past years.

By the end of the second quarter, the government’s gross debt has fallen to 68.7% of the GDP, down 1.3 percentage points from the end of March, according to preliminary financial accounts published by the MNB. The current value represents an eleven-year low, most recently in 2008 Q3, just before the IMF loan. In parallel with the gross debt ratio, the net debt of the general government continued to decline, with a ten-year low of 54.9%.

Hungary 2018 Budget Deficit 2.2 pc of GDP, State Debt 70 pc

The national debt peaked at 83.5% of the GDP in 2010, and then began to decline gradually after a long period of stagnation, reaching its current value below 70%. There are two main reasons behind the favorable figures says economic news site, Portfolio. The first one is the reduced budget deficits, which dampen debt growth, the other being the exceptionally strong economic growth in recent years which reduces the debt-to-GDP ratio due to higher nominal GDP.

According to Takarékbank’s estimates, this could mean that by the end of the year it may fall below 67%, the next year below 63.2 and after 2021, below 60%, meeting the Maastricht criteria which states the ratio of gross government debt relative to GDP must not exceed 60% at the end of the preceding fiscal year. Hungary’s constitution also requires a strict, year-end debt-to-GDP ratio to fall each year until it reaches 50%.

Budget Deficit 39 pc for Full-Year Target at End-June

While these numbers are certainly favorable, they cannot be considered groundbreaking achievements, as the nominal debt is on the rise, Portfolio notes. General government debt totaled HUF 29,519 billion at the end of Q2, an increase of HUF 161 billion, compared to the end of March. Since the beginning of the year, Hungary’s debt has increased by almost HUF 480 billion. This means our current debt growth rate will soon rise to over HUF 30,000 billion.

A turnaround is unlikely until there is a budget deficit, as it has to be financed by loans every year. However, based on current economic indicators, the budget to break even could be reached in the future.

In the featured photo MNB governor György Matolcsy. Photo by Szilárd Koszticsák/MTI