Macro Analysis /

Hungary: Budget deficit shrinks by 11.4% y/y to HUF 2,590.4bn in Jan-Oct

  • Budget expected to deteriorate to deficit in November but annual target still within reach, in our view

  • Budget revenues practically reach full-year plan in Jan-Oct

  • Regulated energy prices cost HUF 157.5bn to budget in October

23 November 2022

The budget deficit of the general government, excluding municipalities, amounted to HUF 2,590.4bn in Jan-Oct and declined by 11.4% y/y, the finance ministry published detailed budget execution data for the period. The deficit represented 82.2% of the full-year target. The government had earlier signalled that the budget will register a relatively high deficit in November, presumably because of the pension indexation and bonus payments. We still consider the data as supportive of achieving the cash-based budget deficit target for the full year in case the spending restraint is maintained.

Tighter fiscal discipline and the extraordinary tax measures have contributed for the relatively favourable budget situation in Jan-Oct, in our view. Budget revenues rose by 23.1% y/y for the period and have already reached the full-year plan despite some drag from lower-than-expected EU fund disbursements. On the other hand, budget spending increased at a slower pace of 19.2% y/y, mainly because the government started to limit some expenditures in the past few months. Total budget expenditures represented 97.5% of the annual target in Jan-Oct. The finance ministry reiterated that it will keep fiscal discipline and aim for savings as long as the EU sanctions were in place, in our opinion meaning that the sanctions against Russia generate excessive costs on the budget because of the high global energy prices.

In October alone, the budget posted a surplus of HUF 101.3bn compared to the HUF 630.1bn deficit for the same month of the previous year. The surplus was to some extent due to large EU fund inflows, which increased by around six-fold y/y. EU fund revenue still remained lagging behind the plan for the cumulative Jan-Oct period. Total revenues rose by 40.8% y/y because of the EU fund boost, as well as because of almost two-fold y/y increase in corporate tax revenues, largely reflecting the windfall taxes on the banking and energy sectors. There were also triple-digit y/y increases in revenues from state property and from interest but these had a small share in the total revenues and did not contribute much to the overall budget revenue growth.

Budget spending was down by 6.2% y/y in October. We attribute the y/y decline to the shift of fiscal policy towards savings, specifically in the areas of spending on EU programmes and spending by line ministries. Labour market data has suggested that the government has implemented some sort of staff optimisation in the public administration, resulting in some y/y declines in the maintenance expenditures of line ministries, in our view. These managed to dampen the impact of a considerable hike in subsidies in October in particular. Subsidies amounted to HUF 265.7bn in the month, up from HUF 63.1bn in Oct 2021. The strong increase was due to HUF 157.5bn of subsidies for maintaining the regulated utility prices, which were paid during the month, the ministry explained. Subsidies for passenger transport and for subsidised lending by state-owned Eximbank were also higher y/y, it said.