A bit more clarity on the fiscal results of 2016

HUNGARY - In Brief 07 Jan 2017 by Istvan Racz

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The public can see a bit more clearly after an announcement by the Economy Ministry yesterday, even though key questions remain unanswered. The new piece that found its place in the puzzle is that the full-year cash deficit of the central government ended up at HUF848bn or 2.4% of GDP. This implies a HUF907bn (2.6% of GDP) deficit in December only, the biggest ever monthly deficit generated by the Hungarian government. Obviously, the objective was to burn an unwanted fiscal surplus before the end of last year, more accurately to export it to 2017, an election campaign year when the governing party wants to spend a lot and achieve the smallest possible annual fiscal deficit at the same time.Importantly, the December and the full-year gaps are both HUF143bn (0.4% of GDP) smaller than predicted by the Economy Ministry about three weeks ago. This reflects the difficulties associated with spending such a vast amount of money within just a few days. But it has not been announced yet how much the ESA2010 annual deficit for full-year 2016 could be. Given that the Ministry combined a forecast of 2.1-2.3% of GDP for that latter indicator in mid-December with its prediction of the cash deficit, one could simplistically speculate that the ESA2010 gap could now be 1.7-1.9% of GDP, less than the forecast by the same amount as the shortfall of the cash deficit.But this is unlikely to be so. The biggest item in behind the big December cash deficit was an about HUF710bn payout on EU-backed development programs. A big part of these funds are reimbursable by the EU, and thus they do not add to the ESA2010 deficit. In addition, possibly 30-40% of the development funds paid out now must ha...