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The debt went very wrong.
- The rate set an all-time record
- Even the IMF loan did not cause a similar situation.
- How much does the forint in debt mean today?
- 2021 may be easier
Now for sure: our debt has skyrocketed
By the end of the year, Hungary’s public debt as a percentage of GDP had risen to “only” 80.4 percent, compared with the previously announced 81 percent, according to financial accounts data released by the MNB. With this, the eight-year downward trend was drastically broken, as the debt index increased for the last time in 2011. The more favorable data than in the first estimate was due to the fact that the evolution of GDP in the fourth quarter caused a positive surprise. The graph below also shows that with this, the debt ratio marked a new historical peak, in 2011 it was also 80.4 percent of gross national product, and from there it gradually decreased to 65 percent.
It can already be seen from this that the combined effect of two factors has basically raised the debt ratio:
- On the one hand, GDP fell, which would have meant an upward rate even with nominal debt unchanged.
- On the other hand, the nominal level of debt also increased, according to the central bank, the liabilities of the central government amounted to 46 billion HUF at the end of the year, which exceeded the 2019 level by more than 6.6 billion HUF.
Therefore, the debt ratio jumped more in 2020 than in 2008-2009 when the IMF loan was contracted.
From the above, it can be seen that our debt / GDP ratio then increased by a total of 12.6 percentage points in two years, compared to which the jump of 15.7 percentage points in one year is particularly dramatic.
The debilitating florin didn’t do well either
One of the positive developments in recent years has been a significant decrease in the share of foreign currency debt, which is already below 20 percent. This did not change much last year, despite the fact that the issuance of foreign currency was significantly higher than planned, and the indicator may start to decline again in the next few years.
This also means that today the weakening of the forint exchange rate has a much smaller effect on the debt, this revaluation effect is less and less.
At the same time, the weakening of the Hungarian currency by more than ten percent last year did not go unnoticed, which also influenced the jump in the debt ratio. According to the December ÁKK report
The revaluation due to the weakening of the forint represented an item of 547,000 million HUF in foreign currency debt.
This year could be easier
It should not be forgotten that a significant pre-financing influenced the increase in debt last year, which already makes things easier for 2021. Therefore, the Public Debt Management Center (ÁKK) also issued foreign currency bonds in the autumn, with which was insured to cover maturities until 2023. In addition to the unplanned fundraising of 2.5 billion euros, the debt manager also sold more bonds in florins than necessary.
The two items together amount to about 1.4 billion guilders, so many foreign exchange expenditures and the budget deficit in 2021 have already been funded by the state in advance.
And this means that there is a good chance that the debt ratio will fall below 80 percent this year, but of course it still depends on many factors. On the one hand, economic growth will be very important, since GDP is the counter of coefficients. Regarding the budget deficit, Finance Minister Mihály Varga recently announced that a deficit of 7.5% is expected this year, lower than the 8.1% in 2020, but still high. Furthermore, the forint exchange rate can expect a lot, as last year’s example also showed that the weakening of the currency can also have a significant appreciation effect on debt.
Cover image: Getty Images
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