Economy 28 March 2023, 11:50am

Hungary's current account has a hull breach

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Hungary’s seasonally adjusted net lending (i.e., the combined balance on its current and capital accounts) reached -7.5% of quarterly GDP in the fourth quarter of 2022, the National Bank of Hungary (MNB) reported on Tuesday. The latest data confirm expectations that there was little sign of an improvement in the external balance at the end of last year, and that external imbalances were therefore large. The dramatic deterioration is due to a surge in imports as energy prices soared, which is also good news, as the sharp fall in gas prices since then could significantly reduce the country's financing needs this year.

Due to the high C/A gap, Hungary's net foreign debt debt has also risen, amounting to EUR 21,133 million at the end of December 2022, excluding FDI debt instruments, 12.5% as a percentage of GDP in the last four quarters. The net external debt increased by EUR 6,897 million compared to the previous quarter.

However, the economy's short-term debt fell slightly in the last quarter of last year to €34.6 billion. As foreign exchange reserves are above €38 billion, Hungary's reserve adequacy is in order under the Greenspan-Guidotti rule.

It is worth noting that the financing needs calculated from the bottom (financial account) account for 12% of GDP, so it is possible that the official top-down indicator will be revised downwards with the next quarters' reports.