Hungarian economic plan a failure, with public deficit above 60 percent after three months
On Tuesday, the National Economy Ministry released preliminary data showing that Hungary’s cash flow-based general government deficit reached HUF 2,554.1bn (EUR 6.28bn) at the end of March.
At the end of the month, the central budget had a deficit of HUF 2,458.4bn (EUR 6.04bn), and the social security funds were HUF 115.0bn in the red, but separate state funds had a HUF 19.3bn surplus.
The ministry said that the deficit reached HUF 831.2bn (EUR 2.04bn) alone for March, exceeding the pro-rata target because of the impact of payment deadlines for some tax forms on the revenue side and significant payments for public services and support for the regulated utilities price scheme for the period covering the winter months on the expenditure side. It added that revenue, including that from VAT, still climbed 11.6pc from the same period a year earlier.
The ministry said interest expenditures reached HUF 1,553.7bn in January-March, up HUF 312.4bn from the base period because of payouts on inflation-linked retail securities and interest payments on dollar bonds.
Analysis
There will still be some large interest payments in the coming months, but these expenses will level off in the year’s second half. So after the deficit spike at the beginning of the year, if the government cuts spending in the second half of the year and revenues rise as growth picks up, it should be able to do so. But there will be parliamentary elections next year. Despite the ailing Hungarian economy, the distribution of election money has already started, which Hungarian families are happy about. Still, there will be a serious problem in the year’s second half. As we’ve written before, despite the current record-high debt levels, the PM Orbán government is still planning to borrow; details here: Orbán cabinet would like to take up a gigantic, EUR 10bn loan from the USA, Japan, China or Qatar
The government is preparing for the election by increasing the family tax allowance by 50 percent from July, and introducing a full tax exemption for women with three children from October. The two items will lead to an extra spending of around HUF 130-150 billion this year alone. Meanwhile, economic growth has lagged behind, with the government cutting its annual GDP growth forecast from 3.4% to 2.5%. The US, a theoretical ally, is not sparing Hungary and the EU with tariffs, which could make growth fall even further.
Realistically, Hungary is expected to grow by 1-1.5 percent in 2025, with a more drastic imbalance in 2026 due to further electoral splits ahead of parliamentary elections.
As we wrote yesterday, U.S. tariffs on Hungary cite corruption concerns, straining ties despite Orbán-Trump alliance, details HERE.