Weekly newsletter

Hungary’s October Budget Deficit Hits New Record High

Hungary Today 2021.11.19.

Hungary’s cash-flow deficit reached HUF 630 billion in October 2021, which is the highest monthly deficit on record in October. The deficit further adds to the already high year-to-date shortfall, which grew to a total of HUF 2.922t (EUR 7.98bn) in the past 10 months. 

As news site Portfolio points out, this is also the fourth largest deficit figure among the monthly data for January-October. According to the economic website, while it is common for the deficit to run high in the last two months of the year, a record figure already a month prior is unusual, although not entirely unexpected.

Government spending is unlikely to slow down in the last two months

The Orbán-led government originally planned for a HUF 1.5 billion deficit for this year (2.9 percent of the GDP). However, in May, they modified the number, increasing it to roughly 4 billion forints (7.5 percent of the GDP).

Furthermore, the government’s latest EDP notification sent to the EU already reported a planned annual deficit of HUF 4.024 billion.

The Finance Ministry explains the current shortfall by saying that “the government is continuing to manage the crisis by supporting families, cutting taxes, and stimulating investment.”

Among expenditure items, the ministry noted spending on programs supporting road and railroad developments, rural developments, targeted support in transport, tourism, and agricultural sectors, as well as programs to improve the country’s competitiveness.

As the year-to-date deficit equals 73% of the amended full-year deficit plan, there is still room for more spending in the last two months of the year.

Matolcsy warns of  twin deficits

However, this brings high inflation and in addition a lot of risks, at least according to György Matolcsy, the Central Bank’s president.

Matolcsy wrote in a recent op-ed that by running a budget deficit and current account deficit that is high relative to the region, Hungary “is falling into the trap of twin deficits,” which increases its vulnerability.

Orbán Gov't Promises Generous Support for Pensioners Ahead of 2022 General Elections
Orbán Gov't Promises Generous Support for Pensioners Ahead of 2022 General Elections

Pensioners will receive several weeks of payments of the 13th month pension, and a uniform pension bonus of 80,000 forints (EUR 223) by early 2022.Continue reading

With a budget deficit of possibly around 8 percent of GDP and a public debt ratio of 80 percent of GDP, coupled with deteriorating exchange rates, the current account situation, which had been positive until recently, is worsening, Matolcsy added.

Higher inflation makes matters worse, the governor said. Global economic developments are doubtless behind the high rate, but domestic budget deficit spending outpacing productivity and competitiveness improvements are also to blame, he added.

Matolcsy said addressing these problems and restoring balance are urgent tasks.

Featured photo illustration via Pixabay

    [1536x1536] => Array
            [width] => 1536
            [height] => 1536
            [crop] => 

    [2048x2048] => Array
            [width] => 2048
            [height] => 2048
            [crop] =>