June's big cash deficit was caused by an upswing of payments on EU-sponsored development programs

HUNGARY - In Brief 06 Jul 2017 by Istvan Racz

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This morning's report on an unusually big monthly cash deficit of the central government in June may have looked a bit scary at first glance. But looking into the details suggests it should not be highly consequential.The monthly cash deficit in June was HUF698bn, outstandingly big compared to a HUF389bn gap recorded in June 2016 and to the HUF312bn deficit reported in June 2015. It made the H1 cumulative cash deficit HUF911bn or 6.1% of GDP, sharply up from 2.3% in H1 2016 and even from 5% in H1 2015.Cash Deficit of the Central Government (as % of GDP)Source: NGM, KSH, own estimatesHowever, the big jump by the deficit was due to a single item, notably to payouts on EU-sponsored development programs. This was HUF559bn in June alone and HUF1046bn in H1, against the annual plan of no less than HUF2500bn set for this year. Excluding this line, the cash deficit in June was slightly smaller than in the same periods of last year and 2015, and in H1, there were small surpluses recorded in each years between 2015 and 2017 on ex-EU payment basis.Surely, the pickup of EU-backed payments should not be seen as a big problem in principle, to the extent that these are normally counterbalanced by an equal amount of financial claims on the EU, which eventually gets paid by Brussels. On this basis, they do not count as items adding to the ESA2010 fiscal deficit.But the complication is that we do not know how much of these payments were made by the government against invoices issued by the final beneficiaries on completed projects, and how much was paid out as advances. As readers may recall, about three-quarters of EU-related development payments made by the government represented adva...