Hungary’s net external financing capacity drops on lower capital account

The monthly data for December offers a preliminary look at Q4 and 2016 before the MNB publishes its official first reading for the quarter on March 23.

Net external financing capacity fell to EUR 14.2 mln in December alone, down from EUR 586 mln in October and from EUR 380 mln in November.

Hungaryʼs net external financing capacity was a preliminary EUR 6.7 bln in 2016, down from an all-time high of EUR 8.7 bln in 2015, Econews calculated. The surplus on the current account, as well as the trade surplus, widened but the annual capital account surplus narrowed to EUR 1.8 bln from just below EUR 5 bln in 2015. 

The trade and current account surpluses were unchanged from Q4 2015, but last yearʼs fourth-quarter net external financing capacity, at EUR 980 mln, was down by nearly two-thirds from a year earlier. The reason was a sharp fall in the surplus on the capital account, to EUR 316 mln from EUR 2.2 bln in Q4 2015 when the last rush for 2007-2013 EU funding boosted capital inflows. The capital account surplus narrowed in Q4 2016 after year-on-year drops in Q1-Q2 were followed by a rise in Q3.

As usual, the overall capital account moved in tandem with capital transfers from the European Union.

Including current transfers, overall net transfers from the EU reached EUR 593 mln in Q4 2016, dropping almost 2.4 bln from a year earlier. EU capital transfers alone dropped EUR 1.9 bln from their end-of-EU-cycle peak in Q4 2015 to EUR 350 mln.

For the full year of 2016, total net EU transfers were down by a preliminary EUR 4.2 bln at EUR 2.4 bln, Econews calculated. EU capital transfers alone dropped EUR 3.4 bln to EUR 1.8 bln.

The available data indicates that of the funding the EU transferred in Q4, the Hungarian government had not paid out EUR 722 mln to the ultimate recipients by the end of the quarter. As a result, and despite the large payouts made in Q3, the stock of EU funding received but as yet still owed by the government to EU funding winners rose back close to its Q1-Q2 level, and again exceeded EUR 1 bln by the end of 2016, the data suggests. The stock of such government debt to EU funding recipients just exceeded EUR 400 mln at the end of 2015.

The preliminary figures also indicate that the government paid out about EUR 608 mln in advances to winners of EU funding before the respective EU money arrived in Q4. Such advances – the biggest item among “other government receivables” on the financial account – dropped in the first three-quarters. As a result the stock of these advances rose to almost EUR 2.6 bln by the end of 2016, near to the 2015 yearend level when the deadline for 2007-2013 funding disbursement pressed.

The MNB started releasing monthly balance of payments reports in July 2014. The data comprise estimates that may be revised later and are available on the MNB website until the publication of the official statistics for the full quarter.