The European Commission is finally paying its dues, creating abundant liquidity for the government

HUNGARY - In Brief 23 Dec 2018 by Istvan Racz

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Although neither the government, nor the European Commission are specifically saying so, the publicly available cohesion policy data of the latter make it clear that the EU Commission has just paid very substantial amounts of transfers due to Hungary. Our own estimates show the payments, in December only, of HUF476bn of transfers for 2014-2020 and of HUF240bn of transfers for the late 2007-2013 EU budget. This is altogether HUF716bn or 1.7% of GDP. Asked by journalists, the Finance Ministry acknowledged the fact, saying at high (state secretary) level that this big revenue would be used mainly to pay down government debt.This means that (1) the debt ratio will likely fall by a significant amount in December, and so in full-year 2018 as well, and (2) the ÁKK will likely scale back its sales of new government debt, probably to an extent, which will be felt by government bond yields as well. The focus will likely be on holding back the sales of new debt to the market, whereas the government continues to push for increased sales of its special bonds made available to households only. It was just a few days ago that the ÁKK started to sell a series of 5-year household bonds for a starting annual yield of 4.1% (inflation + 1.7 pps), the latter up from 3.8% previously.Collecting these dues, total payments of transfer reimbursements by the EU should reach an estimated HUF1291bn in 2018, higher than the government's HUF1000bn minimum target for this category. It is not normal that payments occur in such a concentrated way. However, the government and the EU Commission had differences of view as to the regularity of the use of some transfers by Hungary. To make the payments poss...