Good news and bad news about fiscal policy

HUNGARY - In Brief 03 Oct 2018 by Istvan Racz

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There seems to be indeed some excitement about the end-2018 government debt ratio, judged by the flow of recent announcements by high-ranking officials, and also the data work carried out by the statistical office (KSH).To start with, the KSH revised its historical GDP numbers upwards the other day, the second time within a few weeks, somewhat curiously. According to the new series, GDP grew by 4.7% yoy, on sda basis, in Q2, 4.8% yoy in Q1 and by 5% yoy in Q4 2017. As revisions affected a relatively long time series, changes accumulate, and as a result, the likely GDP outcome for 2018 rose by several hundred billion forints.One could think that this statistical revision has nothing to do with fiscal policy, but yes, indeed it does, as it will affect the end-2018 government debt ratio. To make it absolutely clear, we are not suggesting that the KSH had no good factual and methodological reasons to change its numbers. But we just cannot avoid suspecting that the fiscal policy context have made the statistical revision a bit more urgent than otherwise.Another part of the story is that, according to a fresh announcement by finance minister Varga, the government now expects a central budget cash deficit of 4.7% of GDP for full-year 2018, including 'several hundred billion forints yet to come in from the EU', rather than the 3.3% target. But no problem, the minister said, because the end-year debt ratio is still likely to be 72.9% of GDP, down from 73.3% at end-2017, the reduction being in line with this year's convergence program. All these numbers have been calculated with the new GDP data, of course.A third part of the story is that the general government's ESA-2010 defic...