BREAKING – Hungary took out a gigantic Chinese loan in secret – avoiding bankruptcy?
The Hungarian government did not communicate that they took up a gigantic EUR 1 billion Chinese loan from Chinese banks to spend on fuzzy infrastructure projects. Taking maturing bonds out of the equation, this is the Hungarian state’s highest loan. We do not know the loan interest, and the Hungarian institutions remained silent about its purpose either.
Secret Chinese loan before the 9 June elections
The incredible new loan uptake was spotted by portfolio.hu in the data of the Government Debt Management Agency (ÁKK). The creditors are Chinese banks like the Chinese Development Bank, the Chinese Eximbank and the Bank of China Hungarian Branch. The repayment deadline is 19 April 2027, while the government took it up on 19 April.
Based on the explanation, the Hungarian government would like to spend the money on high-tech developments, infrastructure, transport and energy projects. The interest rate is not fixed, but the numbers remain in secret.
The Hungarian government “forgot” to mention the loan in its official communication before the 9 June European parliamentary and municipal elections. The ÁKK told portfolio.hu that the rate of the Hungarian state debt in foreign currency would remain under 28.9%, below the 30% threshold, which is better than the 50% in 2010. That refers to the pre-Orbán Socialist government.
The biggest loan in Hungary
One billion euros is the biggest Hungarian loan currently, not considering bond issues. It can be compared with the Chinese loan Budapest took up for the Belgrade-Budapest railway development, which was USD 917 million then.
Portfolio could not discover whether the Chinese loan was advantageous or not because all financial institutions keep the interest rate secret. Based on the interest rate of the January bond issue (4%), it has to be lower to be good for the country.
Interestingly, the Hungarian government regularly reported about its loan uptakes, and the process was easy to follow for journalists before. This Chinese loan, however, was an exception. Or will it be an example?
Where is the money?
Nobody knows whether the government already spent that money, even though there are multiple ideas of where they could put it. First, the Hungarian state budget struggles with significant deficits, so the Orbán cabinet raised taxes in July.
Furthermore, the Hungarian government bought 80% of the Budapest Airport shares in June for EUR 2.5 billion, so the Chinese money could cover part of that transaction. Or the government could fill some holes in the state budget with it. Moreover, the Orbán cabinet must pay EUR 200 million to the European Union as a fine following a Court of Justice of the European Union decision.
Márton Nagy, Hungary’s national economy minister, talked about the increasing rate of Chinese financing in Hungary. For example, he said the Bank of China might cover infrastructure development projects, helping the trade of Chinese companies.
He added that since Western and Eastern FDI are present in Hungary, Chinese banks will show up in monetary financing.
Of course, that does not mean they must finance the Hungarian state with loans.
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Hungary paying price for EU not needing internal border protection
The finance minister said in an interview with news portal Index published on Monday that Hungary is the EU member state paying the price for eliminating the need for border protection within the bloc.
Mihály Varga told the portal that as the minister in charge of the central budget, he had turned to the EU’s budget and administration commissioner, asking Johannes Hahn in a letter late last year for greater EU contribution to Hungary’s increased spending on border protection, which had received “a positive reaction”.
“The commissioner accepted my invitation to visit the border region in the first half of this year,” Varga said. “But what we are seeing now is a constant backing out” by the outgoing commissioner, who, Varga said, had proposed that their talks should instead focus on the priorities of Hungary’s EU presidency.
In response, the finance ministry accepted that Hungary’s presidency should be the basis for talks, indicating, however, to Hahn that stopping illegal migration was also among the key topics on its agenda in addition to the EU’s competitiveness and demography issues, Varga said. He said the commissioner had then canceled his visit.
“We created a clear situation which the commissioner no longer wanted to face, and in the last minute, he abandoned finding a solution to a serious problem for Hungary,” he said.
Varga said Hungary bearing the burden of the EU’s border protection costs violated the principles of solidarity and the fair share of responsibility within the bloc. He said that
instead of an 80 billion forint fine, Hungary should receive a 700 billion forint (EUR 1.8bn) compensation for its expenditures.
The minister said the situation was unfair and a severe burden on the state budget, noting that the country’s border protection spending was “insignificant” compared to the 67 trillion forints earmarked for total expenditure on the EU’s expected budget this year.
Asked whether Hungary’s EU presidency could “bring a turnaround” in settling the issue of Hungary’s border protection spending, Varga said it might come up at Ecofin meetings scheduled for the autumn.
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Future sanctions from Brussels over budget deficit not the only reason for concern for Hungary
The European Commission has found that Hungary, along with six other member states, has a budget deficit exceeding the European Union’s target. Therefore, the fiscal intervention mechanism is back on track. However, it is not just the potential fines associated with EU intervention that are cause for concern. Experts say market reactions could negatively impact the Hungarian economy much sooner.
Several EU members warned over excessive budget deficits
Overspending is not just a problem for Hungary within the European Union. Six other Member States – Belgium, France, Italy, Malta, Poland and Slovakia – are also struggling with fiscal imbalances. In the case of Romania, Brussels suggests that the country has failed to follow previous warnings over profligacy.
The EU’s fiscal rule states that the imbalance in national fiscal positions should not exceed 3 per cent of GDP, and overall debt must be kept under 60 per cent.
Economx points out that last year Hungary had the second-highest budget deficit in the EU at -6.7 per cent, with only Italy’s -7.4 per cent ahead of it. What is more, this year, Hungary has already accumulated a significant budget deficit by March, reaching HUF 2,321.4 billion (EUR 5.87 billion), 92.3 per cent of the HUF 2,514 billion (EUR 6.36 billion) planned and authorised in the Budget Law for the whole year.
As we previously reported, has published a recommendation that “[Hungary should] significantly accelerate the implementation of cohesion policy programmes and the recovery and resilience plan, including the REPowerEU chapter, ensuring completion of reforms and investments by August 2026.” Moreover, the country should improve its social protection system, reduce its reliance on fossil fuels, and, perhaps most importantly, address its budget deficit.
In June this year, the European Commission relaunched its fiscal intervention framework in response to the budget deficits and overspending of member states. By the end of the summer, Hungary could trigger the excessive deficit procedure, which it was under continuously between 2004 and 2013. In the long run, this could lead to new fines if the EU deems the country a threat to the financial stability of the region.
The markets may judge quicker than the EU
Economix spoke to two experts about the potential impact of the relaunched mechanism. Zoltán Ember, of the Iránytű Institute, pointed out that it could take up to 4-7 years before any sanctions are imposed under the procedure. Moreover, the size of the sanction could be much smaller than the recent EUR 200 million fine imposed by the Court of Justice of the European Union for non-compliance with its obligations. According to the analyst, Hungary does not have to fear a very large fine under the procedure in the coming years.
However, he added that even if the EU is not quick to take action, the markets are more capable of responding swiftly. This news can potentially lead market actors to conclude that it is not worth buying government bonds because Hungary is too indebted and no longer satisfies interest rate demands. This, in turn, might set in motion a global process where governments that have been overspending find themselves without the funds to finance their budget deficits, potentially leading to a global debt crisis.
This possibility, the expert said, could incentivise countries to reduce their budget deficits as soon as possible after the launch of the excessive deficit procedure to avoid financial instability.
Are the expectations of Brussels unrealistic?
Zoltán Lomnici, Jr., lead expert at the government-close Századvég think-tank, believes that “Brussels’ expectations are increasingly out of touch with the realities of the member states, making the demands on these countries less and less realistic. The 60 per cent debt-to-GDP ratio is exceeded by most EU countries.”
Moreover, the recent sudden changes in legislation (the application of the Maastricht criteria was suspended by the Commission until the end of 2022 due to the pandemic, and then tightened) have created uncertainty for states. This uncertainty may discourage entrepreneurship and, in the long run, reduce confidence in governments and the EU itself.
The expert added that he believes the Hungarian economy is not lagging in the EU but rather is in the middle of the pack, as evidenced by the fact that Hungary is ahead of Bulgaria, Greece, Latvia, Slovakia, and Croatia in terms of GDP per capita. Further, Hungarian GDP grew by 0.8 per cent in the first quarter of 2024 compared to the previous quarter, and inflation has been in single digits and falling steadily since October 2023.
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Hungary fined for EUR 300 million for violating EU legislations – UPDATE: government reaction
The EU may begin another procedure against Hungary due to overspending
Recommendations of the European semester outline ways to improve the European Union’s resilience and competitiveness, the Trade Commissioner Valdis Dombrovskis said in Brussels on Wednesday.
The country reports published as part of the package review the economic, employment and social developments, and the implementation of the recovery and cohesion programmes, Dombrovskis said.
The recommendations also tackle the most important challenges member states are facing, he said.
In its country report, the EC said Hungary should curb the growth of net expenditures “to put or keep general government debt on a plausibly downward path”, so the general government deficit could converge to 3 percent.
The EC also recommended that Hungary wind down energy support measures before the next heating season, and phase out the remaining price and interest rate caps.
Multiple recommendations
Meanwhile, the government should take measures targeted to improve housing for low-income households, the EC said.
Further, “in light of prolonged delays, [Hungary should] significantly accelerate the implementation of cohesion policy programmes and the recovery and resilience plan, including the REPowerEU chapter, ensuring completion of reforms and investments by August 2026,” the report said.
During the half-time review of cohesion programmes, Hungary should stick to already accepted priorities, and focus on energy poverty and the least developed regions of the country.
The EC also called on Hungary to “improve the regulatory framework and enhance competition in product markets and services by avoiding arbitrary administrative interventions and the selective use of tailor-made legislation providing undue advantage or disadvantage to specific companies, by applying competition scrutiny systematically to business transactions and by reducing the use of emergency measures to what is strictly necessary, in line with the principles of the single market and the rule of law.”
Excessive deficit procedure should be started in the case of 7 member states
Hungary must also improve the “adequacy of the social protection system”, including unemployment benefits; educational attainment levels as well as access to effective active labour market measures, the EC said.
Hungary should also “reduce overall reliance on fossil fuels, accelerate the diversification of gas supply towards non-Russian sources, and take steps to phase out fossil fuel subsidies”, the recommendation said.
The EC has also reviewed 12 member states’ compliance with deficit criteria as laid down in the European treaties, and said an excessive deficit procedure should be started in the case of 7 member states, Belgium, France, Italy, Hungary, Malta, Poland and Slovakia.
In a report prepared on macroeconomic imbalance, the EC said that while most member states returned to a stabler economy, Hungary was still suffering from imbalance.
The EC will now call on the euro group and the European Council to debate and eventually approve the recommendations.
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Hungary’s budget in big trouble: grand restriction pack may come after June
Gergely Gulyás, the Minister of the Prime Minister’s Office, announced in mid-April that the Orbán government would not submit the 2025 budget draft in the spring session to the Hungarian Parliament. That is a clear sign that something is wrong with Hungary’s budget, experts believe. S&P’s latest credit rating came last Friday, and they confirmed that something decisive will come after the 9 June European parliamentary elections.
The government can rewrite the entire annual budget with a trick
Between 2010 and 2023, the Orbán cabinets submitted the first draft of the next budget until May or June, and the parliament accepted it during its spring session. That meant Hungary already had its 2023 annual budget in June 2022.
Opposition parties regularly criticised that procedure but never had a majority to vote the budget bill down. The situation was favourable for the government. Provided there was a need, they could modify the annual budget with decrees.
However, following the COVID-19 pandemic, the Russian invasion of Ukraine and the energy crisis, such modifications rewrote the entire budget. For example, the parliament accepted the 2023 budget in 2022 spring of but rewrote it fundamentally on 29 December 2022.
Long tradition ended
In 2024, the Orbán cabinet decided not to accept the annual budget in the spring session. Probably because the numbers are bad, and their support is at a ‘historic low’ due to the clemency scandal. In this case, ‘historic low’ means that Orbán’s Fidesz would still win the general elections but their support has never been this low since 2010.
Anyway, the government invented the idea of not accepting the annual budget before the outcome of the American presidential elections. They did not clear how that affects the budget of a Central European, EU and NATO member state.
S&P believes that a grand restriction may come after 9 June
Last Friday, S&P, one of the world’s three top credit rating agencies, affirmed their ‘BBB-/A-3’ ratings on Hungary and maintained a stable outlook. However, they added that high-interest costs, sluggish value-added tax revenues, and off-budget activities would pressure Hungary’s fiscal position in 2024.
S&P believes that Hungary’s fiscal slippage this year will be temporary and that public finances will improve from 2025 without threatening economic stability. One of their reasons is that they believe the Orbán “government will announce a credible consolidation agenda in the second half of 2024”.
We will pay a fortune on debt interests
444.hu highlighted that the Hungarian government will have to spend every eighth income forint on the general government interest expense. That significantly reduces the budgetary room to manoeuvre on noninterest items.
Furthermore, the media outlet draws attention to the fact that the Orbán cabinet will spend a fortune on buying Budapest Airport. Since the purchase’s financial background will be a loan, they estimated the transaction would “require at least 1% of GDP in additional central government debt uptake in 2024, on top of what the budgetary deficit proposes.”
Hungarian National Bank governor’s warning
Probably that is why the governor of the Hungarian Central Bank (MNB), György Matolcsy, sent a clear message to the government last Tuesday. The MNB’s deputy governor, Barnabás Virág, said in a background talk that the government should concentrate on reaching its deficit goals.
We can easily understand the second part of the sentence not articulated by Mr Virág: the government should not start distributing money between the people to win the 2024 EP and municipal elections because that would make Hungary’s budget collapse.
Instead of money, we should expect at least a significant fiscal correction and restrictions after the 9 June elections if we take S&P’s prognosis seriously.
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Hungary to prepare EU’s 2025 budget
The finance ministry stands ready to fulfil the important task of the upcoming presidency of drafting the EU’s 2025 budget, Mihály Varga, the finance minister, said after meeting Thomas Westphal, director-general for economic and financial affairs of the European Council, in Budapest on Tuesday. This year Hungary will take up the presidency of the European Union “for the second time amid challenging times”.
Varga added that the presidency would focus on challenges related to competitiveness and demographics, the ministry said in a statement.
Hungary to prepare the EU’s 2025 budget
The Hungarian presidency will need to find ways to increase the bloc’s competitiveness, the statement quoted Varga as saying, adding that efforts would be made to reduce “the growth and innovation gap” between the EU and its competitors.
“We want heightened focus on demographic problems which may fundamentally determine the continent’s future. Reversing negative demographic trends is one of the greatest challenges; that is why the Hungarian government is committed to supporting families,” Varga said, adding that Hungary’s family benefits in relation to economic output was the highest in the EU.
Varga said the EU should take a greater responsibility for Europe’s security, increase defence spending and reinforce border controls. He warned that illegal migration “must be stopped rather than managed”, and he urged the EU to increase its contribution to the related efforts of members states.
He said the EU could have a new common customs authority and database to “meet new challenges of e-trade,” the statement said.
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Fidesz politician: ‘EP left-liberal majority passes judgment without evidence’
The left-liberal majority in the European Parliament acts as if it were a court and passes political judgment without evidence, without giving real reasons, ruling Fidesz MEP László Trócsanyi said on Tuesday.
Trócsányi told an event organised by The European Conservative that Hungary’s judicial system was in line with European standards from all aspects. On the EU Justice Scoreboard, Hungary’s justice system and its administration have been granted excellent scores, he added.
Commenting on a report approved last week at the EP plenary session in Strasbourg concerning the 2021-2027 implementation of the Erasmus and Horizon EU student programmes, he said the EP had “robbed Hungarian researchers and young people” of the opportunity to participate, “without explanation of any kind or citing false arguments”.
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Trócsányi said that the EP decision was “outrageous and unacceptable” considering that neither Erasmus not Horizon affect the EU budget. “Hungary’s participation would not endanger the EU’s financial interests under any circumstances,” he said.
He added that it was “shameful” that the EP plenary had made such a decision ahead of the June EP elections.
“The decision was motivated by fear that centrist-right political parties would gain strength not only in Hungary but throughout Europe,” he said.
Orbán cabinet miscalculated by EUR 3.1 billion, budget deficit has become brutal in 2023
Hungary’s cash-flow-based budget deficit came to 4,593.4 billion forints at the end of December, the Finance Ministry confirmed in a detailed reading of data published Monday.
The central budget deficit was 4,293.3 billion forints at the end of the month and the social security funds were 412.3 billion in the red. Separate state funds posted a 112.3 billion surplus.
The general government deficit widened from 4,074.3 billion forints at the end of November, but the ministry noted that the full-year gap was below 4,672.1 billion forints the previous year.
The ministry said the war, the energy crisis resulting from sanctions policies, and the high-risk global economic environment had put the budget under “significant pressure”. In spite of the unfavourable circumstances, the budget ensured the preservation of the value of pensions, and the continuation of family subsidies and the regulated utilities price scheme for households, it added.
The ministry noted that expenditures related to the regulated utilities price scheme for households came to 1,373.5 billion forints in the full year, close to double the 699.2 billion in 2022.
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Spending on European Union funded programmes came to 2,812.2 billion forints in the full year, while transfers from Brussels were worth 2,229.2 billion.
The ministry said revenue from taxes and contributions was up 15.2 percent from the base period.
The finance ministry earlier estimated the accrual-based ESA general government deficit reached 5.9 percent of GDP last year.
Hungary’s budget deficit was shockingly high in 2023
The government’s “most important goal” this year is to kick start economic growth while reducing the budget deficit and public debt further, the finance ministry said on Tuesday.
In a preliminary reading of data, the ministry said that Hungary’s cash-flow-based budget deficit was 4,593.4 billion forints (EUR 12.1bn) at the end of December. The central budget deficit was 4,293.3 billion forints at the end of the month and the social security funds were 412.3 billion forints in the red, it added.
The ministry noted the impact on the budget of one-off transactions like the purchase of Vodafone Hungary and stakes in Magyar Posta insurance businesses.
The ministry noted that expenditures related to the regulated utilities price scheme for households had come to 1,373.5 billion forints for the full year, close to double the 699.2 billion forints in 2022.
Expenditures on compensation for suburban and long-distance public transport totalled 744.2 billion forints, 155.4 billion forints more than in 2022.
Spending on European Union-funded programmes came to 2,812.2 billion forints for the full year, while transfers from Brussels were just 2,229.2 billion forints.
Hungary’s government has been pre-financing EU-supported investments for years, a practice that impacts the cash-flow deficit, but not the accrual-based deficit calculated according to EU accounting rules.
The ministry said revenue from taxes and contributions was up by 15.2 percent from the base period.
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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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Hungary’s budget in serious trouble: EUR 2.62 billion missing
Hungary’s budget is in serious trouble even though the government cut back development expenditures due to the lack of EU funds. The reason is the lower-than-expected VAT income. That comes after Hungary experienced the EU’s highest inflation.
According to Forbes, the government calculated a HUF 8 thousand billion VAT income in 2023. However, by end-November, only 77.3% of that sum arrived. That is almost HUF 1 thousand billion (EUR 2.62 billion) below the expected amount.
Therefore, even though the government does not spend on EU development programs, the budget has a tremendous hole. According to portfolio.hu, the state-owned companies try to plug that. Their November contribution was HUF 334 billion after 2022 November’s HUF 33 billion.
Budget deficit HUF 4,074 bn in November, ministry confirms
Hungary’s cash-flow-based budget deficit was 4,074.3 billion forints (EUR 10.7bn) at the end of November, the Finance Ministry confirmed in a detailed reading of the data on Thursday.
The central budget deficit came to 3,824.9 billion forints at the end of the month and the social security funds were 421.3 billion forints in the red. Separate state funds had a 171.9 billion forint surplus.
The ministry said the war in Ukraine, the energy crisis resulting from sanctions, and the high-risk global economic environment had put the budget “under significant pressure”. In spite of the poor circumstances, the budget ensured the resources to preserve the value of pensions and maintain family subsidies, alongside the regulated system of utilities prices, it said.
“In spite of extraordinary expenditures, the government is reducing the deficit and public debt from year to year,” it added.
Spending on European Union-funded programmes came to 2,402.0 billion forints in January-November, while transfers from Brussels were just 1,265.4 billion forints.
The ministry said revenue from taxes and contributions was up by 15.9 percent from the base period.
Hungary trade surplus narrows to EUR 1.003 bn in October
Hungary’s trade surplus reached 1.003 billion euros in October, narrowing from 1.340 billion euros in the previous month, the Central Statistical Office (KSH) said in a second reading of data on Friday.
Exports edged up by an annual 1.1 percent to 12.771 billion euros, after falling for two months. Imports dropped by 13.2 percent to 11.768 billion euros, declining for the seventh month in a row.
Trade with other European Union member states accounted for 77 percent of Hungary’s exports and 70 percent of its imports during the month.
Hungary’s terms of trade improved by 9.7 percent during the period as the forint firmed 7.9 percent to the euro and 14 percent against the dollar.
In January-October, Hungary’s exports increased by 6.6 percent year-on-year to 125.635 billion euros, while imports fell by 6.1 percent to 117.706 billion euros. The trade surplus reached 7.929 billion euros.
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Hungarian budget working group holds inaugural meeting
The Hungarian budget working group, tasked with protecting the fiscal balance, held its inaugural meeting on Monday, Finance Minister Mihály Varga, the group’s head, said.
The body weighed 54 proposals, approving most before the cabinet considered them, and “vetoing or delivering a negative opinion” on six, Varga said in a video message posted on Facebook.
“The goal is clear: the strict defence of the budget balance and the further reduction of deficit and public debt levels,” he added.
He said Hungary aimed to reduce state debt relative to GDP to below 60 percent by 2026, adding that high GDP growth, further tax cuts, a reduction of the debt burden and improving economic outlooks would provide the foundation to achieve that target.
The budget working group, established early in December, is composed of the head of the Prime Minister’s Office, the head of the Prime Minister’s Cabinet Office and the prime minister’s political director, as well as the finance minister.
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Budapest assembly adopts 2024 budget
The Budapest municipal assembly on Wednesday adopted the city council’s 2024 budget, targeting revenue of 437.7 billion forints (EUR 1.1bn) and expenditures of HUF 442.6 billions.
The deficit will be covered from bonds and revenues from bank deposits.
The budget, adopted with 17 votes in favour, allocates HUF 6.94 billion towards the repayment of loans.
The councillors of the ruling Fidesz-Christian Democrat alliance did not return to the assembly meeting after Budapest Mayor Gergely Karacsony called a recess over 1st district mayor Marta Naszalyi’s disciplinary hearing.
The assembly’s group leader for ruling Fidesz said in response that Budapest’s 2024 budget was “a budget of incompetence”.
“While the city can calculate with a record 300 billion forint revenue in business tax next year, it is still caught up in debt, and it has not even a single development project in its budget draft,” Zsolt Wintermantel said on Facebook.
He said that the Budapest leadership “has spent all of the city’s record revenues generated in taxes and consumed up the reserves while the city is not developing, but operating from day to day”.
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Hungary’s EU funding for the 2014-2020 projects under completion
Fully 95 percent of Hungary’s EU funding for the 2014-2020 budget period has been tapped so far, financing 52,000 projects, Tibor Navracsics, the regional development minister, told parliament’s economic affairs committee at a hearing on Monday.
Hungary is a top performer in terms of successfully utilising funds, he said.
In the last funding period, Hungary had 11.5 billion euros in resources, and, taking domestic co-financing into account, the EU framework amounted to 27 billion, he said.
In addition, Hungary has been able to tap an additional 2.1 billion euros in aid up to 2025.
Financial period 2021-2027
The 2021-2027 EU funding period is also under way, he noted, and talks on cohesion funds and the support and loan parts of recovery funds started last year.
Last December, the European Commission endorsed the Hungarian operational programmes and the Council approved the use of the support part of the national reconstruction plan, he added.
Hungary and EC concluded the partnership agreement, ensuring cooperation for the financial period 2021-2027, paving the way for the utilisation and withdrawal of cohesion funds, the minister said.
On Dec 8, the EU economy and finance ministers approved Hungary’s plan, freeing up the loan part of the recovery fund, Navracsics said.
In May, parliament adopted the legislative amendment in connection with EC concerns over the rule of law, and the EC asked the government to further clarify various issues in two rounds. The minister said he trusted the EC would acknowledge the answers and it would be possible to move forward and access the funds.
As the EC has adopted Hungary’s operative programmes and projects to be financed from the recovery fund during the period, the country “has managed to avoid losing funds and implementation of the operative programmes has started,” he said.
But concluding talks with the EC did not mean “an automatic access” to community funds “even if the political conditions have been settled”. The EU has frozen 55 percent of the funding for three operative programmes “until the Hungarian government comes up with solutions that the EU finds reassuring,” he said.
The EU “came up with further questions and concerns” about six months ago, which “the government is trying to manage, but an agreement has not been reached yet,” he said.
Cohesion and recovery funds were crucial, he said, for the country to narrow existing disparities, and the goal was to make optimum use of those funds to that end. The government will continue to use EU funds to “reduce the development differences” between various regions of Hungary, he said.
When it comes to university foundations and related EU funds, he noted the matter has been on the agenda since February, and the EC had come up with new demands. Hungarian students can participate in the Erasmus programme until September 2024. It was likely, he added, that an agreement may be reached ensuring that Hungarian students take part in mobility programmes thereafter, too.
Navracsics said the European Parliament was putting political pressure on the EC, which complicated negotiations.
Meanwhile, he said Hungary had begun tapping EU funds for the 2021-2027 period, and was outperforming other member states in drawing down the money.
Addressing tasks ahead after Jan 1, Navracsics said state administration and local government tasks will be transferred to the public administration and regional development ministry. Read details HERE: Orbán government creates a new ministry
As we said before, as unexpected turn of events, EC sends Hungary EUR 1 billion.
Brave promise: government will curb deficit, debt despite higher expenses
The government is working to ensure budget resources to preserve the value of pensions, maintain family subsidies and the utility price cut scheme, despite the significant pressure due to the war in Ukraine, the energy crisis resulting from sanctions and the high-risk global economic environment, the finance ministry said on Friday.
Hungary’s cash flow-based budget deficit was 4,074.3 billion forints (EUR 10.7bn) at the end of November, the finance ministry said in a first reading of data.
The central budget deficit reached 3,824.9 billion forints at the end of the month and the social security funds were 421.3 billion in the red. Separate state funds had a 171.9 billion surplus.
The general government deficit widened from 3,487.6 billion forints at the end of October.
The full-year deficit target is 3,400.2 billion. The deficit reached 4,753.4 billion forints in 2022.
Between January-November, the costs of the utility price cap scheme came to 1,333.8 billion forints, up from 394.2 billion forints in the same period last year, the statement said.
The budget has also pre-financed European Union schemes, totalling 2,402 billion forints between January and November. Meanwhile, incoming EU funding came only to 1,265.4 billion forints, it said.
In November, the government increased pensions by 3.5 percent to preserve their value. The raise cost the annual budget 188.2 billion forints, raising the total of pensions-related costs in the first 11 months of the year to 5,313.4 billion.
Health-care costs came to 2,189.1 billion in the same period.
Revenues from taxes and contributions have grown by an annual 15.9 percent in the same period.
Total revenues of the central budget were 18 percent higher than in the same period last year, the statement said.
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Here is S+P’s verdict about whether you should invest in Hungary or not
S+P Global Ratings has affirmed Hungary’s investment grade rating in spite of the war and the energy crisis caused by sanctions policies, the Finance Ministry said on Friday.
S+P affirmed Hungary’s ‘BBB-‘ sovereign rating with a stable outlook, showing credit rating agencies’ continued confidence in the Hungarian economy, the ministry said.
S+P delivered a positive assessment of the fast reduction of inflation, the stabilisation of the forint and the improvement of the current account balance, it added.
The rating agency also noted that the government had access to a “broad array” of financing, including a stable domestic banking sector, retail securities and issues on international markets, the ministry said.
S+P pointed to risks related to Hungary’s energy vulnerability, but acknowledged diversification efforts, the ministry said. It also put political debates with the European Commission among challenges Hungary faces, but its analysts expect the start of transfers of EU funding soon, the ministry added.
Hungary October trade surplus EUR 1.037 bn
Hungary posted a trade surplus of 1.037 billion euros in October, down from 1.340 billion in the previous month, the Central Statistical Office (KSH) said in a first reading of the data on Friday. Exports rose by 1.2 percent year on year, to 12.786 billion euros, while imports dropped by 13.3 percent, to 11.749 billion. In January-October, Hungary’s exports increased by an annual 6.6 percent, to 126.651 billion euros, while imports fell by 6.1 percent, to 117.687 billion, with a trade surplus of 7.963 billion.
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Hungary’s budget is in trouble: less income, more expenditure, state unable to save money
The Orbán government, having a supermajority, regularly accepts Hungary’s annual budget the year before. After the COVID pandemic broke out, the parliament had to rewrite most of the budget numbers because the state always spent more than calculated in the previous year.
According to 444.hu, that is what happened this time, as well. The parliament accepted the 2023 budget in May 2022 when we knew nothing about this year’s challenges. That is why Hungary reached only 71 percent of the calculated income. Meanwhile, the increase rate of expenditures compared to last year is almost 20% even though the law calculated only 15%.
The core of the problem is that the Hungarian state did not get enough revenues from the VAT because people consume less due to the economic crisis. Meanwhile, the state must pay more on state bond interest. The state cannot save money.
Hungary’s cash-flow budget deficit narrowed
Hungary’s cash-flow budget deficit narrowed to 3,264.9 billion forints at the end of September, posting a surplus of 33.7 billion in the single month, the Finance Ministry confirmed in a detailed release of data on Friday. The central budget posted a shortfall of 3,266 billion forints at the end of September, with social security funds 135.7 billion in the red and separate state funds 136.7 billion in surplus.
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The ministry said in a statement that the budget would ensure the value of pensions was preserved and household energy subsidies and family benefits maintained. At the same time, it said the government was committed to reducing the deficit as well as cutting the public debt from year to year.
Household energy subsidies cost the treasury 1,105.6 billion by the end of September, it noted. Government spending related to programmes financed by the European Union came to 1,992 billion in Jan-Sept, while EU transfers were worth 1,159.9 billion.
Budget revenue was below target due to a temporary drop in consumption, the statement said. The full-year deficit target is 3,400.2 billion forints. The deficit reached 4,753.4 billion in 2022.
Fitch: Hungary will not escape recession, the state budget looks bad
Hungary’s decision to raise its 2023 budget deficit target to 5.2 percent of GDP from 3.9 percent makes reaching next year’s 2.9 percent target “more challenging”; at the same time, inflation is expected to fall sharply, Fitch Ratings said on Friday.
Fitch forecast the 2024 deficit would reach 3.7 percent of GDP in 2024 and 2.8 percent in 2025. Hungary’s state debt relative to GDP should continue to decline gradually in 2023-2025 on the back of “solid” GDP growth and the return of primary surpluses, but the ratio will remain above the ‘BBB’ category median, Fitch said.
Fitch acknowledged press reports suggesting that the European Commission could unlock up to 13.3 billion euros of Hungary’s suspended cohesion funds by the end of 2023 and said the disbursement of the EU funds would “take some pressure off” public finances and be growth-positive. “While an agreement with the EC is our baseline expectation, we remain cautious regarding the timing and size of eventual disbursements,” the rating agency added.
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- Hungary will lose millions of EUR in taxes in 2024 and its economy is faltering
Fitch noted that Hungary’s GDP contracted by an annual 1.7 percent in the first half, as household consumption was hit by high, albeit easing, inflation, while high borrowing costs and cuts in state spending weighed on investment activity.
As high-frequency indicators suggest continued weakness in household spending in Q3, Fitch lowered its full-year GDP forecast to -0.9 percent from 0 percent. It sees growth recovering and averaging 3 percent in 2024-2025, but pointed to downside risks linked to further delays of EU funding and spillover from potential fiscal consolidation efforts. Fitch rates Hungary ‘BBB’, two notches over the investment grade threshold, with a negative outlook.