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MNB said in a biannual assessment of budget trends that reallocations, fiscal reserves, tax increases – such as the sectoral tax on retailers and the boosted bank levy – and rechannelled European Union funding could cover a “significant part” of the pandemic expenditures, reducing their net fiscal impact to 3.2% of GDP.

A breakdown of the HUF 3.405 trillion of pandemic expenditures in the report shows healthcare defense measures reaching HUF 801 bln, or 1.7% of GDP, tax cuts and subsidies for families HUF 409 bln, or 0.9% of GDP, economic defense programs HUF 1.86 tln, or 4% of GDP, and workplace preservation and creation as well as development spending HUF 335 bln, or 0.7% of GDP.

Covering those additional costs are HUF 1.911 tln in revenue, equivalent to 4.1% of GDP, including HUF 1.451 tln, or 3.1% of GDP, in reallocations, HUF 125 bln, or 0.3% of GDP, in revenue-boosting measures, and HUF 335 bln, or 0.7% of GDP, in rechannelled EU money.

The economic slowdown could reduce this yearʼs tax revenue by HUF 1.16 tln-1.3 tln, equivalent to 2.5-2.8% of GDP, according to the report.

MNB estimates the general government deficit will reach 7-7.5% of GDP this year and said the scale is “average” in EU comparison.

Governmentsʼ own projections show deficits in the EU as a whole reaching 8.4% of GDP this year. Deficits in the other Visegrád Group countries – the Czech Republic, Poland, and Slovakia – are expected to average 9.8% of GDP.

MNB said the fiscal impact of pandemic expenditures is likely to raise Hungaryʼs state debt relative to GDP to 76% this year from 65.4% at the end of 2019. That increase is still well under the average 16-percentage-point rise expected across the EU, it added.

State debt relative to GDP could start falling again from 2021, the report shows.