The Hungarian government recorded a monthly budget surplus of HUF213bn (euro537mn) in July, easing its budget worries.

This brings the year-to-date general government cash flow deficit to HUF2.44 trillion. The deficit is now 61% of the Government Debt Management Agency’s planned financing needs for 2024. 

“July’s surplus was the second highest monthly surplus we’ve seen for the seventh month in 22 years, which is a great positive development,” ING said in a note.  “What is even more encouraging is that for the first time since 2021, the 12-month rolling cash flow based budget deficit got within shooting distance of HUF4tr.”

The budget deficit has been a worry ever since Viktor Orban’s government went on a spending splurge to win the 2022 general election. The problem was worsened by subsidies to mitigate the energy crisis sparked by the Russian invasion of Ukraine, spending that was wound down much slower than economists had called for. 

This has hurt the currency, while the central bank’s tight monetary policy in response has crimped growth, in turn depressing budget revenues and raising financing costs. Hungarian GDP declined 0.2% quarter on quarter in the second quarter.

Meanwhile the European Union’s suspension of funds because of the Orban government’s violations of the rule of law has widened the financing gap.

In March the government  raised its deficit forecast for this year to 4.5% of gross domestic product.

The EU put Hungary under its Excessive Deficit Programme in June. Hungary’s 2023 budget gap of 6.7% of GDP exceeded the government’s original target by some 3pp and in the absence of further measures, the Commission projects it to remain elevated at 5.4% of GDP in 2024 and decelerate to 4.5% in 2025. Public debt fell 0.5pp in 2023 to 73.5% of GDP.

The International Monetary Fund (IMF) warned this week that Hungary will miss the budget targets in its EU Convergence Programme.

The budget deficit will hit 5% of GDP this year unless counter-measures are taken, and stay above the Maastricht criterion of 3% through 2026, while public debt will exceed 70% of GDP up until 2028, the IMF forecast.

ING predicts a deficit this year of 4.5%-5% of GDP, warning that weak growth could cause an overshoot. 

“The recent disappointing GDP data for the second quarter signals that economic activity remains weak, posing a downside risk to the inflow of indirect tax revenues – the main pillar on which the budget’s revenue side rests,” the bank said.

The government has said it will propose to the EU new measures to close the budget gap in the autumn.