Poor budget, strengthening forint

HUNGARY - In Brief 09 Apr 2024 by Istvan Racz

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The central government's cash budget did not do particularly well in March and Q1, according to fresh data from the Finance MInistry. In annualised ratio-to-GDP terms, the March deficit was recorded at 9.7%, marginally down from 9.9% one year earlier, and the Q1 total reached 12.2%, exactly the same as in Q1 2023 (see chart below). It is becoming increasingly obvious that the improvement that should be there to achieve a reduction of the annual general government deficit to 4.5% of GDP, the upwardly revised target, from last year's 6.7% actual, is just not there yet. However, the forint has been doing really well in recent days, strengthening below EURHUF 390 most lately, from close to the 400 line at some point in early March. The latter might be traced back, in a great part, to the Economy Minister's recent activities. Mr. Nagy has just acknowledged that the budget is going on the wrong path, adding that they will postpone certain development projects to push it back to the right course in the rest of this year. True, he declined to give an estimate on how much the intra-year adjustment will have to be (analysts typically say it is around 1.2-1.3% of GDP). But an even greater story is the most recent reconciliation between Mr. Nagy and Governor Matolcsy, who met at least twice in recent days, demonstrated (basic) agreement on a number of issues, and concluded that the government and the MNB must cooperate on policy. Previously, the spectacular and unproductive hostilities between the two of them depressed the forint markedly. But it appears the government has realised the obvious, that talking down the forint by making statements and taking measures that are hostile ...