Did Hungary's public debt decline or not then?

At first sight the state secretary is right, as long as numbers go. According to the latest known figure, Hungary’s public debt was 85.8% of GDP at the end of 2010 and the end-June 2013 figure was 81.6%. this means the reduction was slightly more than 4 ppts. Still, Orbán’s statement is not exactly solid.

1. The smallest issue is a simple methodological note. Hungary’s GDP data are presently under revision and we can rest assured both of the above figures will change as a result. How do we know that? Because full-year figures are already available and the GDP revision pushed the end-2012 debt number up to 79.8% of GDP from 79.3%. Currently we estimate that when the quarterly GDP numbers are also ready, the fresh figures will lift the 2013 debt figure more than the 2010 number. The difference will not be significant, however, so this is not the major problem.

2. It is a lot bigger problem, albeit sill in the realm of accounting) that we simply do not compare Q2 debt figures. Debt financing plans are created for a full year therefore the end-year data are the benchmark. Depending on whether little or a lot of debt maturing in the third quarter needs to be refinanced/prefinanced the figures can show massive fluctuations. If we wanted to assess the change in debt between two points in time, we should definitely examine the end-year indicators. And on this note we can talk about a different kind of problem now.

3. Although Orbán did not say, we can assume that when he talked about the debt reduction over the past three years, he identified this as an achievement of the current cabinet. In fact, the 2010 performance was based on the budget created by the previous regime. If it made any sense to compare quarterly debt figures (but it doesn’t, as you can see above) it would be worth comparing only the Q3 numbers at most, if we want to evaluate the current government’s performance. We are in such a lucky position in this respect that the end of 2010 is perfectly suitable for us, because the incoming government implemented both fiscal loosening and adjustment measures in 2010, the result of which hardly changed the final balance. So, let’s look at the numbers now!

4. Hungary’s debt-to-GDP ratio was 82.8% at the end of 2010, according to the latest figures, and it dropped to 79.8% by end-2012 - a three percentage point decrease. This is still not bad, but we have to stress that the debt ratio will not be lower at the end of 2013, either. According to the latest targets, the debt ratio should be down at 79.2%, but for this figure the cabinet has not taken into consideration the Eurobond issuance pencilled in for this year. This will keep the debt ratio below 80% only if the cabinet applies a few small “tricks".

All right. Let’s see what we can see! Hungary’s debt-to-GDP ratio dropped 0.1 percentage point in 2011 when the state nationalised 10% of GDP worth of private pension fund assets. An actual debt reduction took place in 2012 when the debt ratio went down 2.3ppts and in 2013, as we have mentioned above, we can see stagnation here at best.

If we insisted that in the three years since Q2 2010 Hungary’s debt-to-GDP decreased by 4.2ppts we would still need to highlight that almost half of this slump stemmed from six months which still “belonged" to the previous regime. (But as we have noted above, this would not make much sense.)

On the whole, we can state that the cabinet’s battles against public debt yielded very minimal results at great sacrifices, not to mention that the war is not over yet. Considering the estimates for 2014 the debt ratio might just shrink by four percentage points in the current government cycle, but if we evaluate the debt path which derives from macroeconomic processes (i.e. if we disregard the effect of the nationalisation of private pension funds) we find that the path was in fact slightly ascending.

• Tags:
• economy,
• debt,
• gábor orbán,
• debt rule