As a consequence of the pandemic, Hungary’s gross government debt-to-GDP ratio jumped up to 81.2%, meaning that it broke a 25 year-record and has gone above the 2008/2009’s global crisis level. While the opposition blames the government, economic decision-makers are rather optimistic and say erasing the debt was a necessary step.
Since the previous global economic crisis (after the various left-liberal governments between 2002 and 2010, Fidesz-KDNP took over the country’s leadership) Hungary worked hard to push down the government debt, meaning that from 2010 this was decreased to 65.4% by 2019.
A decreasing government debt was also quite often featured in Viktor Orbán’s statements, as something that is crucial for the country’s sovereignty. In addition, Hungary’s Fundamental Law, voted in by Fidesz-KDNP’s parliamentary majority, also set the gross government debt-to-GDP ratio goal to 50%.
The coronavirus pandemic, the recession it has caused, and the measures aimed at mitigating the economic impact of the crisis however, rewrote the scenario, resulting in a declining GDP (-6.4%) and a budget gap of 8.6% of GDP. This increase equals a 15.8% rise in comparison to the 2019 data and means that the government’s efforts have been eliminated merely in one year.
In comparison to international tendencies, economic site Portfolio highlights that Hungary’s ratio is not particularly high as the European Commission forecasted an average 15% rise in the EU’s debt ratio for 2020. However, in comparison to the Visegrad countries, Hungary’s debt hike proved to be the largest.
Opposition: government indebted Hungary
The sky-rocketing government debt has caused a domestic political uproar as well. Democratic Coalition demanded an explanation from the prime minister. DK MP László Varju called it “outrageous and shameful” that the Orbán government “has pushed the country into a debt service for several years for the sake of the opportunity to steal [public monies] and make luxury investments.” “What we have instead of crisis management, job protection, and state wage subsidies is the construction of sports stadiums, a hunting expo, and the Budapest-Belgrade railway line,” Varju said in reference to some of the government’s controversial projects.
Jobbik MEP Márton Gyöngyösi similarly blames the government and Orbán for the high number. He says instead of spending on themselves and on Orbán’s subordinates, the money should rather have been spent on education and the creation of quality, well-paid jobs for preparations for the second wave of the epidemic.
Government: erasing state debt was necessary
The prime minister’s senior economic advisor Márton Nagy commented that the rise is due to spending on defense and restarting the economy, while revenue has also gone down due to the lower growth, and if GDP falls, this ratio would be higher.”
He believes that although in one year ten years of consolidation has been lost, “in fact it was a very necessary step.” He also said that since public debt in Europe increased by the same amount, Hungary guarded its comparative advantage over the EU, “which is very important,” he argued.
Nagy is quite optimistic about the future too, expecting a GDP growth of up to 6% this year and 6-7% for 2022. He attributes the rebound in the country’s economic performance to two factors: on one hand to the economic policy pursued over the past ten years, as a result of which the economy has become “shock resistant.” On the other hand to a set of crisis management measures aimed at protecting and revitalizing the economic sector.
Meanwhile, in its analysis the Finance Ministry suggests that amid the prolonged effects of the pandemic, offsetting this drastic increase will be a lengthy process. They expect the debt-to-GDP ratio to only slightly drop below 81% by the end of 2021.
In the featured photo: Finance Minister Mihály Varga. Photo by Tamás Kovács/MTI
