Economy 30 June 2021, 1:40pm

Hungary’s debt climbs to 81% of GDP in Q1

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The general government's net financing requirement in the first quarter was HUF 862 billion, or 7.5% of GDP, the latest financial accounts released by the National Bank of Hungary (MNB) on Wednesday show. As a result, government debt, which rose significantly last year, has not decreased. Hungary’s debt is now 81% of GDP, a seven-year high.

Debt could decrease during the rest of the year as the denominator of the debt-to-GDP ratio grows, and pre-financing at the end of last year may also help decrease the ratio. The government planned for a slight debt reduction in this year’s budget, but as GDP growth will nearly certainly be higher than expected, debt could also decrease faster. It will certainly decrease in the next quarter, but the effects of spending during the coronavirus crisis will take some time to disappear.

The central bank’s financial accounts do not show a turnaround in the other two major sectors, corporate and household lending, either. Net lending of households was equivalent to 8.5% of quarterly GDP (HUF 980 billion) in Q1 and 8.1% over the last four quarters, indicating that households are still saving as the lockdowns limited consumption opportunities. The net lending of corporations rose even more steeply, although there have been signs of slowing in Q1.

As the graph below shows, Hungary’s overall financing capacity would have grown in Q1 due to lower household consumption and corporate investments, but this was offset by the government’s higher financing requirement, which means net lending of the rest of the world remained unchanged at around zero.