A nice Christmas gift from the EU Commission

HUNGARY - In Brief 30 Dec 2017 by Istvan Racz

---

In our December report, we wrote that the parallel achievement of the government's end-year spending targets, especially to disburse HUF 2500 bn to local beneficiaries under EU development programs in full-year 2017, and compliance with the legal requirement to reduce the gross debt ratio during the year, could push the Treasury into an inconvenient liquidity squeeze if the EU Commission fails to pay out reimbursements on the invoices which were sent out to Brussels before October 31.However, this problem is now finally out of the way, as the government found the money in question, some EUR 1210 m, under the Christmas tree, duly paid by the EU on December 22, in line with a somewhat earlier decision that a running investigation of potential irregularities around local disbursements represented no sufficient reason to block payments to Hungary. The investigation has not been completed yet, and it has not been called off either, but the EU Commission said that so far they have not found sufficiently serious reasons to stop the payment process, and maybe they did not want to risk allegations that by blocking payments at a critical time, they may have wanted to influence the ongoing election campaign in Hungary.Besides, achievement of the government's end-year fiscal objectives was also helped by the forint's late-December appreciation by four units against the euro, to the end-year official fixing of EURHUF 310.14, which shaved some 0.3 percentage points off the end-year gross debt ratio. Of course, we have no evidence whatsoever that the MNB made any effort to elicit that short-term forint appreciation, but would not be surprised if it had been actually the case. Similar...