Are you sure?

Committee’s opinion on Eximbank could see state debt soar

Hungaryʼs Eximbank should be classified within the general government sector, according to the majority opinion of a European advisory committee regarding the statistical classification of the institution, financial news site portfolio.hu reports. The reclassification has the potential to result in a sharp increase in the countryʼs state debt.

The opinion of the Committee on Monetary, Financial and Balance of Payments Statistics (CMFB), an independent advisory committee for the European Commission (Eurostat) and European Central Bank and a platform for cooperation between the statistical and central banking communities in Europe, was described as unexpected by portfolio.hu.

Issued on July 13, the opinion states that a majority of respondents agreed with the following statement regarding the status of the Hungarian Export-Import Bank (Eximbank):

“Eximbank should be classified in the general government sector
(S13). Under this view, Eximbank is a government-controlled entity that does not comply with the criteria of financial intermediary as defined in ESA2010. The Bank, 100% owned by the state, has limited autonomy of decision in its main corporate policies, acting on behalf of the state for public policy purposes, mainly financing export-import activities. Eximbank is also constrained regarding its assets and liabilities. Consequently, Eximbank has the features of a captive financial institution controlled by government; it is a non-market producer and should therefore be classified in S13.”

The opinion was issued in response to a request from Hungaryʼs Central Statistical Office (KSH) and the National Bank of Hungary (MNB) for clarification of the statistical classification of Eximbank. This came after Eurostat, the EUʼs statistical office, claimed that the institution should be included within the state budget.

The opinion was based on a very close vote among participating entities. A total of 55 institutions in the European Union, comprising 27 national statistical institutes, 26 national central banks, Eurostat and the ECB Directorate General Statistics, returned the relevant questionnaire within the specified time.

A majority (25 respondents) supported the Eurostat position on Eximbank, with a minority (24 respondents) supporting the Hungarian view and six respondents expressing no opinion.

A bank or not a bank?

Last May, Eurostat refuted the claim by the head of the KSH that Eximbank operates as an independent financial intermediary.

“The fact that a unit is called ‘bank’ is not relevant; the decisive factor is whether or not the unit is a deposit-taking corporation. Given that Eximbank does not take deposits it cannot be classified in S.122,” said the EUʼs stats office at that time.

In April this year, Eurostat reiterated its reservations about the way Hungary classifies Eximbank in its national accounts statistics.

“Eurostat is maintaining the reservation on the quality of the data reported by Hungary in relation to the sector classification of Eximbank,” the statistical office said, adding that it considers that “Eximbank should be reclassified inside the general government sector, which will result in an increase in government debt.”

News site index.hu notes that as an advisory body, the opinions of the CMFB are not legally binding. Consequently, although the majority has sided with the view of Eurostat, the Hungarian authorities may choose to ignore the opinion and continue to refuse to include Eximbank within the state budget.

Index.hu observes that Eurostat may subsequently take a firmer stance, choosing to publish its own statistical data on Hungary instead of that calculated by the Hungarian government. The Hungarian side could potentially then turn to the Court of Justice of the European Union for resolution of the dispute.

Portfolio.hu also notes that, besides resulting in a potential leap in Hungaryʼs reported state debt, the reclassification of Eximbank could have international repercussions, given that other countries with banks carrying out similar export-import activities might be subject to similar probes and consequent reclassification. This, it concludes, could have consequences for the entire EU and the debt indicators of the eurozone as a whole.

The full CMFB opinion can be viewed here.