Excellent new fiscal data for H1 2025, paradoxically requiring the continuation of tight MNB policy

HUNGARY - In Brief 02 Oct 2025 by Istvan Racz

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The Eurostat-methodology figures for the government sector deficit, the main indicator for fiscal policy, was published for H1 2025 yesterday. The deficit ratio was surprisingly low, only 0.7% of GDP in that period. This result could raise eyebrows on the market, given the cash deficit ratio of the central government was 6.6% of GDP for the same period, which is obviously a sea of difference. The explanation can be partly known to the public, and partly it cannot. The known items of difference are the following: - the central government paid out net interest of 5.5% of GDP in cash in H1, whereas the net interest that became due for the whole government sector in that period was only 3.6%. This, again, goes back to the payment of annual interest on inflation-indexed retail bonds in the early part of this year;- the government sector collected 1.2% of GDP in dividends in H1, which counts as revenue in cash but does not do so in Eurostat data;- local governments, which are not included in the central government, had a surplus of 0.3% of GDP in H1. All this cuts down the government sector deficit from the big cash figure mentioned above to 5.6% of GDP, and so the rest of the difference remains unexplained. Here, one problem is that the cash figures reported by the Economy Ministry include various financial transactions (essentially the extension and redemption of various credits and loans), which are counted there as revenue or expenditure, and these are then removed in the accrual-based Eurostat dataset. Another problem is that Eurostat's definition of the government sector is substantially broader than that of the official Hungarian definition, some 500 organisation addi...