Some useful good news on fiscal policy

HUNGARY - In Brief 27 May 2018 by Istvan Racz

---

Just as the MNB seems in a little bit of a trap, as the European cycle, EURUSD, EU matters and emerging market assets are moving in the wrong direction, there seem to be two pieces of good news just having come up on domestic fundamentals, and more accurately on fiscal policy.First, the government sector's net financing capacity came out to a marginal surplus of 0.1% of GDP in Q1, despite the fact that the central government reported a cash deficit of 9% of GDP, and a cash deficit excluding the EU reimbursement gap of 3.9% of GDP. But how come? Well, the central government in fact had a net financing deficit of 1.8% of GDP in Q1, but local governments recorded a 1.9% of GDP surplus in the same period. Essentially, the central government was distributing (EU-backed) development transfers in such a haste that local governments piled up much of the funds received, as they were unable to spend it at the same speed. Of course, this means that substantially bigger local government spending is likely to follow at a later stage. The remaining part of the explanation, i.e. on what gives the difference between the central government's cash deficit and net financing requirement on accrual basis, is not available from official sources yet. Our working hypothesis is that many of the EU-backed development projects, on which substantial payouts were made in previous periods, must have arrived in their implementation phase, and the central government may have made big write-ups of claims vis-a-vis the EU Commission, as they received and processed the related invoices in Q1 2018.Anyway, the government sector's net financing requirement reached 2.4% of GDP on rolling 12-month basis at e...