The state of the Hungarian budget

Since August 5 Magyar Televízió has a new man as one of its anchors on the early morning political program "Ma Reggel" (This Morning). His name is Péter Obersovszky, the nephew of Gyula Obersovszky, an important actor in the 1956 Revolution. I first encountered Péter Obersovszky when he was working for InfoRádió, the first all-news radio station expressing moderately right-wing views. Soon enough I stopped listening to InfoRádió and lost Obersovszky from sight. Later I learned that he moved further and further to the right until now he is working for Echo TV, which one can safely label as extreme right.

Recruiting politically committed people from Echo TV for a part-time slot on the public television station is mighty peculiar. I wondered whether Obsersovszky would try to be a tad more objective on MTV. Nope! He valiantly defends the government without the slightest pretense of objectivity.

Why do I say all this? Because a few days ago Obersovszky interviewed a conservative economist, Peter Heim, who is heading the Századvég Economic Research Institute. As most of my readers already know, this is a Fidesz inspired research institute. But even for Heim Obersovszky was over the top when he applauded the Hungarian government's revolution against the exploitation of the IMF. Heim tried to explain the financial realities of Hungary. During the conversation Heim expressed his opinion that the government is being frugal and isn't conducting an irresponsible fiscal policy. Well, Obersovszky was delighted to hear that because "the left liberal media" keeps talking about irresponsible spending.

For some time my impression has been that there are signs of excessive spending that might increase the budget deficit. We don't yet know the effects of tax cuts though at least in the short run one might expect lower revenues flowing into the national coffers. And unless energy prices fall in the face of a global slowdown or the winter is much milder than normal, artificially keeping the price of natural gas low might be expensive for the government. I read only a few days ago that the cost of running the government, instead of going down as Viktor Orbán promised, has actually been going up. It's true that Orbán can boast about the smallest cabinet in recent Hungarian history (eight ministers) but the next layer of highly paid government officials, undersecretaries and assistant undersecretaries, has grown enormously. So much so that not all of them could fit into the largest chamber of Sándor Palota; they had to be divided into two groups for their official installation by the president.

Then one hears that X ministry is moving to Building A while another office is moving out of Building A and going to Building B. All that costs a lot of money. More than we would think. And then there's the chaos that is being created. Because of the total reorganization of the government structure people are searching in vain for the right office to handle their affairs. People don't even know which ministry is in charge. There is also the extra money given to the police, creating entirely new units to guard the prime minister. The new minister of interior is inquiring from the policemen and women whether they are satisfied with their old uniforms. I already see the handwriting on the wall. The police force needs new uniforms. After all, for a new, revolutionary regime, new uniforms are needed. New uniforms for the armed forces have already been designed, even more anachronistic than the current ones. The minister of defense also has grandiose plans to purchase more tanks because, after all, one must defend the country's borders. That is what the constitution says, he claims.

And let's not forget about the terrible damage inflicted on the country as a result of the extensive flooding. The government promised all sorts of help, but assistance has not been forthcoming. Some of the flood victims demonstrated in front of Viktor Orbán's office, to no avail. No one wanted to talk to them. At the same time, just yesterday, Orbán promised financial help to the Hungarian National Council of Voivodina. According to some people the money could be better spent at home. A few million was promised to Hungarian flood victims in Slovakia, but week after week it turned out that the MKP, Fidesz's favorite party, still hadn't received the promised amount.

Only a week ago the Hungarian Olympic Committee received a gift from the government of 700 million forints.

I'm sure that these few items I spotted in the papers represent only the tip of the iceberg. So, as opposed to Heim, my impression was that spending had grown and that there might be problems with the budgetary figures.

And indeed. Today, the Hungarian National Bank released the figures. According to the bank the Hungarian government's net financing requirement–an estimate of the budget deficit–jumped to 6.1% of the GDP in the second quarter of this year, up from 3.6% in the previous quarter. In plain language before the Orbán government took over, the government held to its promise to constrain the budget deficit. In fact, there was 0.2% to spare. Meanwhile the financing requirement in the twelve months ending June 30 was 4.8% of GDP, up from 4.4% in the twelve months ending March 31. Hungary's public debt calculated at nominal value stood at 82.9% of GDP at the end of June, up from 79.6% of GDP at the end of March.

All in all, my impression seems to be correct. There is more borrowing and more spending. On balance Hungary's financial situation has worsened since the elections. Patriotic slogans about the greatness of a nation that is united–Viktor Orbán's favorite theme of late–will not change these figures. The Orbán government's luck is that the Hungarian people are totally ignorant of economics. On August 20th the graduating cadets could  march in brand new braided uniforms, could carry swords like in the old days before the war, and could swear on the Holy Crown of Hungary. But all that will not help the worsening situation. The problem is that I'm not sure that the economic geniuses around Viktor Orbán even realize the gravity of the situation.

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Yes, you are the one recognizing the gravity of the situation. What about international markets? Hungary is able to float its bonds; as a matter of fact the market wants more of it. The forint stabilized inspite of the IMF critique. I guess the international financial markets do not reflect “your” reality.
Yes, the Hungarians are ignorant of economics and ethics, I might add. Otherwise, they would not have tolerated the previous government of 8 years that brought Hungary to an economic collapse.

Eva S. Balogh

Frank: “Yes, you are the one recognizing the gravity of the situation. What about international markets? Hungary is able to float its bonds; as a matter of fact the market wants more of it.”
Yes, for the time being.


Eva:”Yes, for the time being.”
Unless you have a crystal ball, I don’t know the basis for your statement. Investors would not take the risk if the situation was as dire as you lead us to believe
By the way the lower currency will help the export industries and that is how you re-establish economic equilibrium in the long run.

Karl Pfeifer

Nobody has a crystal ball, but serious media is formulating the question, has the present government an economic policy?

Passing Stranger
@Frank, how can you first praise the stabilising of the Forint, and then contemplate the wisdom of a weak Forint one post later? Seems to me you are going to defend the government regardless of what happens. The market has stabilised because nothing much has happened since July. The forint is still weaker than it was before the elections, by 10 Fts or so. My crystal ball tells me you will get your wish for a weaker Forint when the IMF returns in September, shortly before the local elections in October. Nationalist posturing by Orban will no doubt cause a similar hiccup in the value of the currency. I think Eva underestimates Orban. There is conscious strategy at play here, only it is not in the field of economics. Orban may not be much of an economist, but he understands political power. A victory in October means he can do whatever he pleases for the next four years. I’m quite sure Orban be only too happy to fulfill the IMF’s and the EU’s every wish once those elections are safely behind him. He needs to – where else is he going to get the money to fund his flat tax?… Read more »
Passing stranger, stabalization and lover value of the currency are not mutually exclusive facts/ideas. The forint remains in a relatively small trading range, albeit at a lower value than previously. This is a reflection/appraisal of the current state of the Hungarian economy (due to the misdeeds of former government(s)) not the economic policy of the present government. Personally,I don’t give a hoot who runs Hungary at this point, all I care where the Slovaks and Slovens are today inspite of the fact that they were economically ranked well behind the Hungarians in 2003. Now, you are going to tell me that Fidesz run the country since 2003, yes? The broom will come out in October as well not necessarily because people are in love with Orban but rather due to the unpopularity of the former ruling parties and its allies. Lies, corruption, mismanagement, etc eventually catch up with anyone. Karl, ” serious media”, I am sorry but I never heard this expression before. But let us deal with facts hence let’s have a look at today’s version. Interest rates dropped about 17 points in 2 days on the Hungarian papers which were oversubscribed again. If the market has confidence… Read more »
Karl Pfeifer

Frank is that O.K.?
Serious / Quality newspaper (so-called
· long headline
· often long paragraphs
· not many pictures
· pictures are relatively objective, don’t
aim at evoking an opinion
· structured
· long sentences
· lots of information per paragraph

The Columbian

I wanted to weigh in on this but Frank did a splendid job already.
Is the Whistler teaching journalism 101, or just trying to be condescending?