State Audit Office assesses first-half fiscal trends

While fiscal processes are favorable overall, the general government ran a cash flow-based deficit of over HUF 1.420 trillion at the end of the first half, 4.4% over the full-year target, the ÁSZ noted. EU transfers are nearly HUF 800 bln below the pro rata target, it added.

The late arrival of EU transfers to cover funded programs does not cause the deficit to rise when calculating with the EUʼs accrual-based accounting rules, and state debt levels calculated using Hungarian standards are adjusted accordingly, the ÁSZ noted. Pre-financing EU-funded projects contributes to growth, even while causing the cash flow-based budget deficit and state debt to rise; however, this increase can be financed under favorable conditions, it added.

State debt rose by HUF 1.587 tln by the end of June from the end of 2017, which is 14.8% over the targeted increase for the full year, the ÁSZ  said. The increased financing requirement was met entirely by raising forint debt, even as the stock of FX debt fell, reducing Hungaryʼs vulnerability, it added.

The ÁSZ expects Hungaryʼs year-end state debt as a percentage of GDP, calculated according to Maastricht rules, to decline this year, as required by law, although it expressed uncertainty that the targeted scale of that reduction, 0.7 of a percentage point, could be achieved.   

The ÁSZ forecast that the general government deficit, calculated with EU accounting rules, would not reach 3% of GDP this year.