Final fiscal data for 2015 and news on fiscal policy offer little clue on rating upgrade outlook

HUNGARY - In Brief 02 Apr 2016 by Istvan Racz

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Earlier this week, the ESA2010 deficit of the 2015 general government was reported at 1.9% of GDP (against 2.3% in 2014 and a 2.4% target), whereas the consolidated gross debt ratio for end-2015 came out at 75.3% of GDP (down from 76.2% one year before). Both figures were slightly better than preliminary (a 2% deficit and a 75.4% debt ratio). These results were proudly presented by minister Varga, who suggested they represent new evidence of a permanently improving fiscal performance. In our own reading, however, the news represents a mixture of good and bad. First, the primary balance of the general government was 1.7% of GDP in 2015, unchanged from 2014, meaning that all improvement in the fiscal balance came from the decrease of the interest burden (the effective interest rate fell to 4.8% from 5.5%). The sizable primary surplus was great news, of course, but the surplus was slowly declining from 2.1% of GDP in 2012, which is no proof of a real policy improvement. Even so, the deficit would not look excessive at all in itself, should it secure a permanent and material decrease of government indebtedness. But this was not the case in 2015, when the reduction of the gross debt ratio came fully from an end-year window-dressing operation - a massive draw-down from the government's bank deposits - and the debt ratio net of deposits actually rose slightly, to 70.8% of GDP from 70.5% in 2014. Fair enough, that was because of the accumulation of HUF738bn of unpaid reimbursements of development grants, due from the EU, by end-2015, which is in principle an extraordinary and reversible item. But the fact is that about 90% of those claims represent disputed items, the payment ...