A really robust fiscal outcome in H1 2017

HUNGARY - In Brief 29 Sep 2017 by Istvan Racz

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We have suspected for a while that fiscal performance must be markedly stronger than plan this year if viewed at the general government level and on accrual basis, which is the key policy indicator from the point of view of assessment by the EU and investors. But we never thought it was quite as robust as it turned out to be this morning, when KSH released the H1 2017 government sector figures by ESA-2010, the Eurostat's methodology.In our latest monthly, we estimated a roughly balanced general government budget by ESA-2010 for January-August, which was preceded by an estimate of a small surplus, up to 0.5% of GDP for H1, given a month earlier. However, the actual number for H1 was a surplus of 1.5% of GDP, against a 0.5% of GDP surplus in the corresponding period last year, which was found by analysts a very strong outcome already at that time. The main reason for this strength of the fiscal trend was a combination of a forceful tailwind from EU development programs with an improving ability of the government to collect taxes, in addition to managing a moderate growth rate for expenditure out of the non-investment or operating part of the budget.These robust H1 results have nothing to do with seasonality. Just the other way round, the traditional pattern within the year is a weaker balance in H1, when annual funding to various institutions and programs is distributed, and then a stronger result in H2 when the bigger part of income and taxes are typically realized. Last year, the full-year fiscal balance came out to a deficit of 1.9% of GDP in the end, but that was only because of a memorable monthly deficit equivalent to 3% of annual GDP in December alone, which the c...