Being no expert on economic matters, I have been hesitant to comment on the state of the Hungarian economy, but for a long time I have had the sneaking suspicion that, despite the self-congratulatory reports of the government and the fairly good numbers, something is awry. Something doesn’t add up. Every day we hear about 45 billion for this project, 35 billion for that project, 50 billion for something else. Most of these projects are frivolous, the classic being a train taking non-existent fans to the Felcsút Football Academy’s fancy stadium. Almost all of the projects are being paid for, at least in part, by money Hungary receives from the much-hated European Union, money that János Lázár, who is in charge of the convergence funds, is trying to spend as fast as possible. These are the investments that were behind the surprisingly good economic growth in 2015. Lázár, who is often quite blunt in his public statements, admitted that Hungary’s economic growth depends on how much money he can “squeeze out” of the convergence funds. Since in the next few years less money will be coming from Brussels, unless the Hungarian economy picks up steam, future economic growth will slow. Under the present circumstances, if the flow of money from Brussels were to stop the economy would simply collapse.
At least this is the assessment of the Institute of Budgetary Responsibility (Költségvetési Felelősségi Intézet). This institute serves as a watchdog over the government’s economic policies. It is a non-governmental organization that was formed in 2011 when Viktor Orbán abolished an official government office, the Budgetary Council, that served the same purpose. The Budgetary Council came into being at the insistence of Fidesz, which, when it was in opposition, was very keen on holding the government accountable. After winning the election in 2010, Viktor Orbán found the Council burdensome, especially since its head, George Kopits, an American-Hungarian who formerly worked for the IMF, severely criticized the government’s budget proposal for 2011. I suggest you read my piece “Goodbye, Mr. Kopits” from November 2011. Here you will meet a rare specimen: a man of integrity. Kopits is a conservative, but by 2013 he was quoted in The Wall Street Journal calling Viktor Orbán’s regime “a constitutional mob rule.” Supporting the work of the Council was a research team of economists. Some of them went on to found KFI.
The Haza és Haladás Alapítvány (Homeland and Progress Foundation, established by Gordon Bajnai) commissioned KFI to prepare a study on the “technical outlook” for the years between 2015 and 2019, which is available online. Without going into the details, let me just say that Balázs Romhányi, the director of KFI, described the Hungarian economy “as a car without an engine that is being pushed and only its windshield wipers work.” Those who push it obviously reside in Brussels.
How heavily is Hungary dependent on the European Union subsidies? As Hungarians nowadays like to say, “brutally.” Here is just one example. The government is hoping for an economic growth of 2.7% in 2016 based on receiving 1,988 billion forints this year and 1,105 billion forints next year in subsidies from Brussels. According to Romhányi’s calculations, however, Hungary would need an extra 600 billion to achieve this goal.
Since Hungary’s GDP depends so heavily on these subsidies, it is of paramount importance for the Orbán government to spend the money as quickly as possible, even if not wisely. Index uses the phrase “throwing the money” when it describes Lázár’s efforts to get projects underway. Although, according to KFI’s calculations, the larger Hungary’s economic growth is in 2016 the smaller it will be in 2017, the study talks about 3-4 “good years.” So if Brussels continues to push the engine-less car, it will help Viktor Orbán’s far-right regime win the 2018 election. Perfect timing, I must say.
Even though the government is under budgetary constraints from Brussels, its spending continues unchecked. “Whatever money comes in [from domestic sources] is immediately being spent.” As an example, when the government received 450 billion forints more in tax revenue than anticipated, “they happily spent the windfall.” Nothing was put aside for a rainy day. In fact, it seems that they spent not only the unexpected revenue but even more.
The government is standing by its call for a 2.4% budgetary deficit. But it seems that without additional revenue it will be hard to meet this target. At the end of October the Magyar Nemzeti Vagyonkezelő Zrt. (Hungarian National Asset Management) sold 14 million OTP shares for 75 billion forints. As a blog writer described it, the government was selling the family silver.
In assessing the economic health of Hungary, economists pay particular attention to employment figures. But there are serious questions about the accuracy of the data being released by the Central Statistical Office (KSH). The concerns are explained quite well in portfolio.hu, so here I will merely summarize the results. Hungary, like the United States, has two measures of employment: the institutional or establishment survey and the labor force or household survey. According to KSH’s own labor force survey, “the entire growth of employed people in the business sector (without employees in public works and those working abroad) totaled 294,000 between 2011 and 2014 [while] the institutional surveys came up with merely 3,000 people.” Surely, KSH is doing something very wrong.
All in all, we have no idea about what’s really going on in the Hungarian economy. I suspect nothing good. I am almost sure that if the Orbán government were to fall tomorrow, the new government would be in a terrible financial predicament. And the majority of Hungarians, in their total ignorance of what’s going on, dream of hosting the Olympic Games in 2024. In fact, 70% of them would be mighty proud.