State debt edges down to 74% of GDP at end of H1

The state debt ratio in Q2 2017 fell from 75% compared to the same period a year earlier, as reported by national news agency MTI. In nominal terms, state debt reached HUF 26,706 billion at the end of Q2, rising from HUF 26,451 bln at the end of Q1.

Net borrowing increased the nominal figure by HUF 305 bln, but revaluations decreased it by HUF 49 bln in the second quarter.

State debt rose by around HUF 797 bln in nominal terms from Q2 2016 to Q2 2017 as a balance of net borrowing of HUF 1,028 bln, which was reduced by HUF 229 bln by the devaluation of FX debt. Net liabilities of the general government amounted to HUF 22,640 bln, or 62.7% of GDP at the end of Q2 2017.

The net financing requirement of the general government, which is a good approximation of the general government deficit, was HUF 574 bln, or 1.6% of GDP, in the four quarters to the end of Q2. The general government had a net financing requirement of HUF 638 bln in Q1 2017.

In Q2 alone, net lending, calculated from the financing side, was HUF 28 bln, or 0.3% of quarterly GDP. In Q1, net lending was HUF 182 bln, or 2.2% of quarterly GDP. In Q2, net lending of the central government amounted to HUF 51 bln.

Financial assets increase

On the assets side, there was a significant increase in other financial assets, and particularly in claims on the EU as well as in trade credits and advances granted to non-financial corporations. The stock of loans granted by central government also rose. The increase in assets due to transactions was partly offset by a decline in the stock of deposits with the central bank and credit institutions.

On the liabilities side, the stock of long-term securities increased significantly due to transactions, with households and local governments being the main lending sectors. The amount of government securities held by the non-resident sector decreased further due to transactions. Loans and financial derivatives fell slightly. Trade credits accounted for most of the modest increase in other liabilities.

Net lending of local governments was HUF 32 bln in Q2 2017. Investments by local governments in government bonds increased significantly, while there were net sales of Treasury bills. Other financial assets of the sub-sector increased slightly.

On the liabilities side, short-term loans from central government rose and there was an increase in other liabilities to central government with a decline in tax liabilities.

Net borrowing of the social security funds was HUF 56 bln in the second quarter. On the assets side of the sub-sectorʼs balance sheet, contribution receivables from households increased. On the liabilities side, only the stock of short-term loans by central government increased significantly.

Net lending of households, at HUF 1,540 bln, was equivalent to 4.3% of GDP in the four quarters to the end of Q2 2017. In Q2 alone, net lending stood at HUF 474 bln, equivalent to 5.1% of quarterly GDP.

Within householdsʼ financial assets, currency and current account deposits increased most strongly. Net withdrawals from time deposits continued, while demand for government securities was strong. Investments in long-term securities increased, accompanied by net sales of short-term securities. Loan liabilities of the household sector increased in Q2 due to transactions. Net borrowing in the case of both housing loans and consumer and other loans continued.

Eximbank status hangs in balance

As reported by the BBJ a week ago, the potential reclassification of Hungaryʼs Eximbank within the general government sector, as recommended by the majority opinion of a European advisory committee regarding the statistical classification of the institution, could result in a sharp increase in the countryʼs state debt.

The inclusion of Eximbank in Hungaryʼs general government balance could increase state debt as a proportion of GDP from 74% to around 76%, ING Bankʼs chief analyst Péter Virovácz said on public television Monday.

Virovácz observed that, depending on the recommendation of Eurostat as to which portion of Eximbankʼs activities were to be reclassified, Hungaryʼs state debt ratio could deteriorate by half, one or two percentage points.