Official: Hungarian government’s financial calculations failed in 2023

As we bid farewell to 2023, it is evident that the Hungarian government fell short in its financial forecasts. The budget deficit, as a percentage of GDP, is projected to be 5.9% in 2023, surpassing the initial target by 2 percentage points. Furthermore, a 0.4% economic contraction is anticipated not only for this year but also in the years to follow, indicating a slower-than-expected recovery for the Hungarian economy.

Official forecast

In adherence to the Public Finance Act, the government is obliged to unveil its primary budgetary and macroeconomic figures for the next three years by 31 December, as reported by Portfolio. Notably, the government strategically chose the very last days of the year to release these figures in recent times, specifically on 31 December in 2020, 29 December 29 in 2021, and 30 December in 2022. In 2023, the latest official medium-term macroeconomic and budgetary forecasts were unveiled on the evening of Saturday, 30 December. Given the festive season’s distractions between Christmas and New Year’s Eve, it raises questions about the timing of such crucial forecasts.

Predictions for 2024

Turning our gaze to 2024, despite optimistic predictions during the summer, the new macroeconomic outlook paints a more modest picture for Hungary’s economic growth. GDP growth for 2024 is projected at 3.6%, compared to the 4% approved in next year’s budget. Inflation, initially anticipated at 6%, is now forecasted at 5.2% for the upcoming year. Moreover, the government envisions average inflation remaining above 3% in 2025, contradicting summer forecasts predicting a return to the 3% target by 2025.

Higher-than-expected deficit

The Ministry of Finance’s document reveals the government’s revised expectation, indicating a budget deficit of 5.9% of GDP in 2023—exceeding the raised target of 5.2% set in October. This means that the number is even higher than the deficit target that had been raised from 3.9% to 5.2% in October. Some may wonder why the deficit target was raised in October as it seems the government did not take the right measures to keep to that number. If the budget‘s most important number is set in stone, it will lead to great uncertainty. It’s all clear to investors and credit rating agencies that the target could have been changed at any time, when looking at data. Nevertheless, the reasons behind this shift remain elusive, prompting questions about the government’s measures and the uncertainty surrounding the budget target.

Despite the elevated deficit, practical consequences are unlikely, given the absence of a major global crisis and the secured financing in 2023. However, Hungary bears a significant cost in interest expenditure.

Why did the budget fail?

Exploring the reasons behind the budgetary shortfall, it becomes apparent that the revenue side shoulders the blame. Payments from companies fell short by nearly HUF 320 billion (EUR 834 million), consumption-related revenues lagged by HUF 1,137 billion (EUR 2.9 billion), particularly due to a substantial decline in VAT receipts, and payments from the general public were HUF 120 billion (EUR 313 million) below the target. Additionally, revenue from the EU fell short by almost HUF 400 billion (EUR 1 billion).
The government estimates total revenues at HUF 25,033 billion (EUR 65 billion), a shortfall of HUF 1,000 billion (EUR 2,605 million) compared to the original plan of HUF 26,032 billion (EUR 67.8 billion). Meanwhile, expenditures have remained slightly below the anticipated figure.

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