Mixed feelings about the fiscal figures of H1 2023

HUNGARY - In Brief 21 Aug 2023 by Istvan Racz

---

This time around, the MNB reported the general government sector's net financing requirement, which tends to be a good proxy for the general government balance figure, the main policy indicator of fiscal performance for any given period. For H1, the latter is due for release only on October 3. The figures are quite bad, but not entirely bad. For one thing, the 12-month rolling net financing requirement reached 8.4% of GDP, up from 6.5% in full-year 2022. This is quite a high figure indeed. In H1 2023, the net financing deficit reached 7.4% of GDP, up from 2.4% of GDP one year earlier. This is not good news, either. Well, yes, 2.7%-points of the current-year figure came from the cost of energy subsidies to households, which were the product of the extreme high import costs of energy, which occurred last year. In H2 this year, related spending will likely be a small fraction of the H1 actual. But even so, please consider that this year's fiscal deficit target is 3.9% of GDP, meaning that government finances would have to be nearly balanced in H2 for the standing annual target to be met. This would be really tough: the net financing deficit ratio rose significantly in H2 last year, while inflation was high and accelerating, and the economy still fell into a recession. This year, the economy is in a marked stabilisation phase, with decelerating inflation and nominal income growth, and yet government ministers expect a bounce-back into positive growth in Q3 and Q4. At any rate, the uphill course of fiscal stabilisation will put a serious limitation on any such bounce-back, we think. For sure, we are not at all confident that the annual fiscal deficit target will be reached....