Economy 20 November 2023, 10:08am

Hungarian public debt stuck at a high level

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Hungarian government debt as a share of GDP stood at 75% at the end of the third quarter, according to the National Bank of Hungary's (MNB) financial accounts statistics released today. The ratio has barely fallen in the last six months and remains higher than at the end of 2022. The government budget deficit for the last one year is still close to 8%.

High inflation did little to help public debt: although nominal GDP (the denominator of the debt ratio) was inflated by the rapid rise in prices, the ratio fell from 75.2% to just 75% in a quarter. In six months, there has also been a modest decline of 0.4 percentage points. (Some inaccuracies may be present in the latest data, as the MNB does not yet know nominal GDP in forint terms, but can only estimate it on the basis of real growth.)

This means that the debt-to-GDP ratio is still higher than at the end of 2022, meaning that some effort may be needed in the last quarter to show a declining debt trajectory. At the end of last year, the debt ratio closed at 73.9%, so a further reduction of just over 1 percentage point is needed in the last three months of the year to achieve a downward trend on an annual basis.

The moderate decline in public debt is due to the economic stagnation and the high financing needs of the budget. In the last one year ending in the Q3 2023, this financing need was 7.8% of GDP. This continues to show a historically very large imbalance in public finances.

04 - financing capacity of hungary's general govt sector

Within the last one year, the second and third quarters of this year show a slightly better picture, with seasonally adjusted government financing needs of 4.7% and 4.3% respectively, weaker than the double-digit figures of the previous two quarters. However, it is still highly doubtful that this year's (increased) deficit target of 5.2% will be met - this would require a fiscal position of around break-even in the last quarter.

Preliminary data from the Financial Accounts Statistics also show that the net lending capacity of households is significant. Over the last year, the ratio stands at 6.3% of GDP. This is mainly due to a fall in household borrowing activity as a result of high interest rates. The combined financing needs of the government and households are falling rapidly, at 1.6% over the last year. The last two quarters show an even better picture, with the seasonally adjusted figure already at 2.5%. The main factor behind the external rebalancing is the fall in the energy import bill, but the fall in household consumption is an important factor.