Much of fiscal window-dressing is going on around year end

HUNGARY - In Brief 27 Dec 2016 by Istvan Racz

---

The Economy Ministry have announced that they expect a HUF991bn (2.8% of GDP) cash deficit for the general government in full-year 2016, which they expect to translate into an ESA2010 deficit of 2.1-2.3% of GDP, up from 1.6% of GDP in 2015. In addition, the ÁKK have just said that the government's gross debt ratio is likely to settle down around 74% at end-2016, slightly down from 74.7% at the end of last year.All this seems to mean that the government have finally decided what to do with the big difference between its revised ESA2010 deficit target (1.7% of GDP) and its much stronger actual position (an EU-adjusted cash surplus of 1.3% of GDP estimated forJanuary-November). The money-throwing helicopter has taken off: for the new target to be achieved, the government will need to make over HUF1000bn (3% of GDP) cash deficit in the last month of the year. Now that Hungary has been recently upgraded back to investment risk, and no one had any objection to next year's 2.4% of GDP ESA2010 fiscal deficit target, raising the current year's target, cut to 1.7% of GDP from the original 2% in September, must have appeared safe. So they did it, with a view to generating in the remaining few days until end-December as much deficit as possible within this new framework, to boost growth and to increase their degree of fiscal policy freedom for next year. In addition, they do not want to cut the debt ratio sharply - they could if they wanted - but they prefer to move in small steps in that area, reducing the ratio by a little bit each year.Can they achieve all this? Yes, they can, and it makes sense from their perspective. First, the government had bank deposits of 9.2% of GDP at e...