Highest ever fiscal deficit measured in January-July

HUNGARY - In Brief 09 Aug 2020 by Istvan Racz

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The central government's cash deficit reached HUF 328bn in July, making the first seven months' cumulative deficit as high as HUF 2165bn or 8.1% of GDP. The local press was hasting to point out that this was the highest ever January-July deficit recorded in this category, and it is true. It is also a fact that any big deficit in July must be regarded as unseasonal, given that July is a quarterly VAT payment period.But this year, the standard is somewhat different. On the positive side, we would say that the cumulative deficit ratio did not rise by any significant amount from 8% of GDP in H1, and also that adjusted for the EU reimbursement gap, the difference between transfer payments by the EU and local disbursements by the government under EU programs, the January-July deficit would shrink to 5.9% of GDP. The latter is still very high as compared to the twice amended target for this year's general government deficit target, which is 3.8% of GDP. But it is very close to our 5.8% standing forecast for the latter category, and so we are not terribly concerned about it.Regarding the financing of the deficit and government debt, the gross debt ratio rose sharply, to 69.2% of GDP by June from 63.4% at end-December. But in net terms, i.e. subtracting the central government's cash reserves, the six-month increase of the debt ratio was much smaller, to 64.7% of GDP from 60.5% in December. This is because the central government's deposits with the MNB were pumped up to HUF 2083bn in H1 from HUF 1373bn at end-December, apparently with a view to having a considerable liquidity buffer on hand during crisis time.