Unfortunately, the Ministry of Finance’s statement did not provide any useful information on the causes of this huge monthly deficit. Although we expected good revenue from the World Athletics Championships in Budapest to reduce the deficit, it seems that we were too optimistic. Our explanation is that the fall in domestic demand has continued, generating income much lower than expected.
On the spending side, the government drew attention to the tax burden associated with the General Expenditure Protection Plan. In the first eight months of this year, the money spent on this program amounted to HUF 1.0851 billion. However, if we review the above statement, we can see that in August the monthly expenditure was only HUF 6.5 billion, which explains nothing.
The press release also highlights the problems related to EU funds, as the gap so far this year between expenditure (pre-financing of projects) and income (from the previous programming period and Agricultural Policy funds Common) related to EU projects stands at HUF 773 billion. While this funding gap explains much of the budget performance so far this year, it does little to help us understand the August gap itself. Especially considering the fact that the budget recorded a net inflow of EU transfers of HUF 62.9 billion in August. We also don’t see excessive monthly spending on pensions and healthcare, as August spending is in line with what we have seen in previous months.
In this context, it is not surprising that there is a lot of talk about a possible budget review in September. After changes to this year’s funding plan, this has become almost a certainty. This goes hand in hand with the fact that the recent press release lacks the optimistic final line that the government’s deficit target appears achievable, which is also important. Although it is unclear what a review might mean in practice, we believe it would be a combination of a revised target upwards from the recent deficit of 3.9% of GDP to around 4.5% and some additional measures to narrow the gap. remaining.