April budget details confirm fiscal adjustment is taking place

HUNGARY - In Brief 31 May 2024 by Istvan Racz

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The detailed figures of the central government's cash budget for April confirm our previous evaluation that fiscal adjustment, very much required given the high fiscal deficit ratio, is actually taking place. As reported earlier, the central government's (the government sector less local government budgets) cash deficit was 10.1% of GDP in January-April 2024, down from 11.8% in the same period of 2023. This does not look very impressive in itself. However, details show that much of this year's problem comes from the substantially increased interest expenditure, which will remain in 2025 as well but fall back substantially, based on current information on HUF and FX interest rates, in 2026. In January-April, net spending on interest reached 5.2% of GDP, up from 3.3% one year earlier. Consequently, the four-month non-interest cash deficit fell to 4.9% of GDP from last year's 8.5%. This already looks a significant amount of adjustment. Also in January-April, revenue growth was actually quite weak at 6.9% yoy, especially because of only 3.1% yoy expansion of VAT revenue, due to a slow recovery of retail sales and shrinking imports. But expenditure grew only 4.8% yoy, mainly because of a 26% yoy decrease of investment spending. One could think that cutting back investment spending sounds bad because of the likely negative consequences on infrastructure, but the fact is that the starting fixed investment ratio was quite high: 13% of GDP in January-April 2023, which fell to 8.6% over the same period of this year. The bad news, however, is that the central government's debt ratio has risen so far this year, to 70.5% of GDP at end-April, from 67.8% in December. This was partly ...