The Q1 fiscal balance number is out, and it is not very nice

HUNGARY - In Brief 17 Apr 2020 by Istvan Racz

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The central government's cash deficit reached HUF 832bn or 7.2% of GDP in Q1, sharply up from HUF 142bn or 1.3% of GDP one year earlier. At this point, only partial information is available, the detailed figures are due in two weeks' time.Note: Data in HUF bn; Sources: Finance Ministry, KSH, own estimatesThe Finance Ministry stressed that revenue collected from key taxes was all right, and that the sharp uptick by the deficit was once again due to Hungary's claims on the EU accumulating in Q1. This appears partly true (see the table above): adjusted for this problem, the deficit rose much more moderately, to 2.7% of GDP from the 1.2% recorded in Q1 2019.However, one intriguing question is how the Finance Ministry accounted for the HUF 218bn annual pre-financing of cohesion fund spending, received from the EU and the HUF 250bn transfer of the MNB's dividend, paid after last year's profit. Both of these items were with the government already before March 31. Revenues from the EU in the foregoing table includes only the reimbursements paid by Brussels after previously implemented fixed investment. The Ministry has not said anything about the accounting treatment of these items. Our current guess is that EU pre-financing will remain a financing item, unaccounted for as fiscal revenue, whereas the transfer from the MNB was most probably treated as financing in Q1, and it will likely be accounted for as revenue in Q2 only.By the way, the big Q1 cash deficit was not at all unprecedented in recent budget history. In Q1 2018, it reached 8.8% of GDP (see the graph below). But that was an election year, in which the government stepped energetically on the brake immediately after ...