It doesn’t happen too often in the world of blogging that readers who are also avid and thoughtful commentators request that one of their own write a “guest post.” But this is what happened. “Tappanch” is always the first to find the salient news of the day. He is never satisfied with journalistic summaries but goes to the statistics. As you will see, he compares several sources of information to come up with his astute observations on the state of the Hungarian economy. I’m sure we will all learn from his considerable research on Viktor Orbán’s mostly lost economic wars.
1. The war on debt
The “Basic Law” that replaced the Constitution on January 1, 2012 mandated that each yearly budget should decrease the “debt of the central government”/”complete domestic product” ratio (36 & 37). Subsequently, the Orbán government postponed the effective date of the start of this reduction to 2016. So it created a legal category that restricts the rights of the Parliament and Courts, contingent on the value of the “complete domestic product”, although there is no such notion in economics. Most people assume that the lawmakers meant GDP here.
On the other hand, the debt/GDP ratio depends on how we calculate the debt and how the GDP.
1.1 The denominator: How large is the Hungarian GDP?
The Central Statistical Office (KSH) currently gives three series of numbers.
(a) GDP in current prices.
(b) GDP in previous year’s average prices,
(c) GDP in 2005 average prices.
The three numbers for 2013 and, in brackets, for 2012 were reported to be
(a) 29114.43 [28048.07]
(b) 28360.18 [27175.44]
(c) 21984.68 [21742.74] billion HUFs on December 31, 2013 [2012].
The head of the potential government appointed “Budgetary Council,” Árpád Kovács, used slightly different numbers in a recent article for (a), namely: (a) 29203 [28048].
The GDP is quoted in HUF, but it is also meaningful to convert its forint value into EUR at some exchange rate. I will use the daily conversion rate of the European Central Bank, which can be found here.
The GDP values in EUR were
98.02 [95.96]
95.48 [92.97]
74.01 [74.39] billion EURs at the end of 2013 [2012].
Let’s see the numbers Hungary reported to the European Statistical Office.
2008: 105.54
2009: 91.42
2010: 96.24
2011: 98.92
2012: 96.97
2013: 98.07
So if one asks about the growth of the GDP in 2013, the answer will be at least sixfold. In HUF terms, we get to the numbers 3.80% [4.12% in Kovács’s article], 4.36%, and 1.11%, while in EUR terms, the growth was 2.15%, 2.69%, and -0.50%, an actual decline.
If we use unchanged HUF prices, i.e. (c), agriculture contributed to 0.9% of the 1.1% growth of the GDP.
In reality, the large volume increase in the corn and wheat production was offset by the significant decline in their price.
1.2 The numerator: How large is the national debt?
Are we talking about the debt of the central government? Do we include local governments or Social Security? Gross debt or net debt? Is the debt “consolidated”? Do we measure the debt in HUF or EUR? Which agency reports the debt?
1.2.1 The gross debt of the central government
This number stood at 19933.4 billion HUF when the Orbán government took over on May 31, 2010; at 20720.1 on December 31, 2012; 21998.6 on December 31, 2013; and 23569.3 on March 14. 2014.
So the gross debt has increased by 6.17% in 2013, but even this number was achieved by tricks to lower it artificially for a few weeks around December 31:
12.06: 22,728.0
12.13: 22,645.1
12.20: 22,365.5
12.23: 22,434.8
12.31: 21,998.1 (local minimum)
01.24: 22,862.1
01.31: 22,842.0
02.07: 22,899.3 (all-time high)
They asked the partially state-owned MOL and ordered the 100% state-owned Eximbank to purchase government bonds for 435 billion HUF. They were repaid in January.
If we count in euros, the debt has increased by a smaller percentage because of the declining value of the forint.
It was
72.35 billion EUR on May 31, 2010
70.89 on December 31, 2012
74.06 on December 31, 2013
74.93 on March 14, 2014
Thus the debt has increased by “only” 4.48% in euro terms in 2013. The debt of the central government has grown by 18.24% in HUF or by 3.75% in EUR since May 31, 2010. This last number looks great, unless we recall the fact that the Orbán government took over the private retirement funds (MaNyuP) of 2.9 million workers on May 31, 2011 and has spent it COMPLETELY by December 31, 2013.
How much of this money was spent for “debt reduction”? (The initial nationalization) + (subsequent voluntary offerings) + interest – (previous capital gains paid to the workers in 2011). The initial nationalization amounts to 2945.3 billion HUF. When I added up the items on the website of AKK, the office that handles issuing government bonds, I came up with the number of 2555.9 billion HUF, which might be a good approximation of the actual new debt the Orbán government created towards the future retirees.
If we add the spent fraction of the retirement forints to the debt, we come up with
19933.4 on May 31, 2010 [72.35 EUR]
22920.3 on December 31, 2012 [78.41 EUR]
24554.5 on December 31, 2013 [82.66 EUR]
26125.2 on March 14, 2014 [83.06 EUR]
So the Fidesz government has increased the debt of the central government by 7.13% in HUF or 5.42% in EUR during 2013. The total debt growth since May 31, 2010 amounts to 31.06% in HUF or 14.80% in EUR. The previous numbers came from the Treasury, which can be found at akk.hu.
The National Bank of Hungary, MNB, has gross debt numbers that are higher by about 1000 billion HUF than the sum of the debt reported by AKK and the spent retirement funds.
24085.5 on December 31, 2012 [82.40 EUR]
25598.8 on December 31, 2013 [86.18 EUR], a 6.28% rise in HUF or 4.59% in EUR during 2013.
The distribution of the gross debt in HUF and foreign currencies has changed since 2010, but the change is not as significant as some government propagandists suggest.
On 2014-01-31 [2010-05-31] {2008-05-31}
40.89% [45.70%] {27.77%} of the debt was owed in foreign currency, “deviza”
0.50% [ 1.26%] { 0.03%} in “other obligations”
58.61% [53.04%] {72.20%} in forints (Source AKK’s website)
1.2.2 Budget deficit and EU support
The budgetary deficit and the growth of indebtness has been mitigated significantly by the support Hungary receives from the European Union. The net EU contribution to Hungary in billions of EURs:
2008: 1.12
2009: 2.72
2010: 2.75
2011: 4.42
2012: 3.28
2013: 4.1 [low estimate, based on Lázár’s statement 4.1= 5.05-0.95]
2014: 4.22 [by the budget plan, 5.21-0.99 @296.9 EUR/HUF]
In this article I use the yearly currency exchange rates EUR/HUF and EUR/USD provided by Bundesbank.
In the 2014 budget plan (September 2013 version), the EU support amounts to more than 10% (!) of the expected revenue, while 7.4% of the outlays were designated to service the interest on the government debt.
Domestic revenue/outlays equals only 85% in the 2014 plan.
In the entire 2014-2021 European budget cycle, Hungary expects to receive 7200 billion HUF, i.e. more than €3.2 billion yearly.
The nominal deficit was:
2008: 3.87= 5696/1.4708
2009: 4.13= 5764/1.3948
2010: 4.22= 5599/1.3257
2011: -4.19=-5833/1.3920
2012: 1.93= 2481/1.2848
The nominal 2013 deficit was €3.13 billion according to financial minister Varga’s January statement.
Let us compare the nominal deficit numbers with those in Kovács’s article. Through 2012, he uses the same numbers Hungary reported to the European Statistical Office as “general government deficit”, which includes Social Security and local governments as well. See here and here.
2008: 3.94
2009: 4.23
2010: 4.15
2011:-4.28
2012: 1.98
2013: 2.32
Kovács contradicts Varga for 2013: Varga stated that the 2013 deficit was 929 billion HUF on January 22, while Kovács gave the 2013 number as 689 billion on March 13. But a recent (February 28) KSH publication puts the deficit of the central government at €3.30 billion (979.8 billion HUF), and the “consolidated” deficit at €3.13.
year: central budget; public finances (államháztartás); with local governments
2010: 3.10; 3.29; 4.07
2011: 6.18; 6.23; 5.73
2012: 2.11; 2.07; 1.76
2013: 3.30; 3.13; n/a
(See p. 26, p. 92 of KSH’s website)
The first two months of the 2014 produced a nominal deficit of 582/305= €1.91 billion euros, which leaves only €1.20 billion of deficit for the remaining ten months of 2014.
Let us calculate a more genuine deficit number, equaling the nominal deficit + the used retirement funds + net EU support
2008: 5.06 = 3.94+0+1.12
2009: 6.55 = 4.23+0+2.72
2010: 6.90 = 4.15+0+2.75
2011: 6.81 = -4.28+6.67+4.42
2012: 6.49 = 1.98+1.23+3.28
2013: 8.57 = 3.30+1.17+4.1 [KSH data + AKK data + estimate from Lázár’s statement]
2013: 7.59 = 2.32+1.17+4.1 [Kovács data for the first number]
2013: 9.61 = 4.34+1.17+4.1 [see 1.2.3 for the first number]
2014: 7.33 = 3.11+0+4.22 [budget plan]
Simicska’s Közgép won at least 432 billion HUF in public tenders in 2013, so about 30% of the EU support goes through the company of the former treasurer of the ruling Fidesz party. We can state with certainty that the genuine budget deficit was the largest ever in 2013.
1.2.3 The debt of the local governments
Here we use the data of the MNB that can be found here.
The liabilities of the government in 109 HUF at the end of 2013 [2012], growth in 2013:
Central government : 25598.8 [24085.5], 6.28%
Social security fund: 51.5 [ 164.5] [the disappeared retirement funds do not appear as liabilities!]
Local governments : 637.4 [ 1280.4]
Total liabilities : 26287.7 [25530.4], 2.97%
“Consolidated” liabilities: 26131.5 [25281.7], 3.36%
“Consolidated debt”: 23067.8 [22392.8], 3.01%
“Consolidated” means that “sub-sectors of the general government” are excluded, as the second note in the MNB spreadsheet explains.
This “consolidated debt” is the number Mr. Kovács uses in his article cited above.
Assets of the government:
Central government: 5848.3 [6583.4], -11.17%
Social security fund: 396.1 [ 368.7],
Local governments: 1592.1 [1414.3],
Total assets: 7836.5 [8366.4], – 6.63%
“Consolidated”assets: 7680.3 [8117.8], – 5.54%
Total net liabilities:
Central government: 19750.5 [17502.1], 12.85%
All governments: 18451.2 [17164.0], 7.50%
“Consolidated” net : 18451.2 [17163.9], 7.50%
Notice that the 2013 general government deficit that can be be concluded from these numbers is (18451.2-17164.0)/296.87= €4.34 billion, and not the €2.32 Kovács or the €3.13 Varga and KSH reported.
Let me summarize: the net financial position of the government is worse than what the gross debt numbers indicate.
During 2013, the increase of the debt amounted to
net debt: 12.85% in the central government,
net debt: 7.50% in the central and local governments combined.
gross debt: 6.28% in the central government,
gross debt: 3.36% in the central and local governments combined.
1.3 The mystical ratios
If you have the right to choose your favorite numerator and denominator, the desired ratio can be achieved with ease. We saw that Budgetary Council chairman Kovács counts with a unique, much lower deficit for 2013 than minister Varga. He also uses a higher “GDP in current prices” for 2013.
His calculations for 2013 [2012]:
Debt: 23068/22393, an increase of 3.01% [“consolidated” debt]
GDP: 29203/28048, an increase of 4.12% [GDP in current prices]
ratio: 78.99% [79.84%]
Let us calculate the ratio using liabilities of the central government from 1.2.2!
Debt: 25598.8/24085.5, an increase of 6.28%
GDP : 29114.43/28048.07, an increase of 3.80% [data provided by the statistical office KSH]
ratio: 87.92% [85.87%]
So we found official data showing the “ratio of desire” up in 2013, contrary to the tenet of Fidesz’s own “Basic Law”.
The ratio from the “consolidated” deficit is the well published (23067.8-22392.8)/29114.43= 2.32%.
But the Maastricht criterion requires member states of the European Union to maintain the yearly ratio of (deficit of the central government + local governments + social security)/GDP below 3%.
This ratio was (18451.2-17164.0)/29114.43= 4.42% in 2013.
2. The war on unemployment
E = [employed in enterprises with at least 5 employees]
R = [employed in enterprises with four or less employees]
S = [self-employed]
N = [employed by non-profit organizations]
G = [employed by the government in regular positions]
F = [“fostered” workers, aka as “közmunkások”]
A = [workers abroad, who somehow are counted in the Hungarian numbers]
Employed = E+R+S+N+G+F+A
The last number A seems to be a closely-held secret, it was divulged only once. How many workers and their families work and reside abroad?
We can get some data from observed remittances to Hungary in 2012:
1. Germany: 105,000; $4100
2. USA: 83,000; $4800
3. Canada: 53,000; $4800
4. UK: 51,000; $2300
5. Austria: 40,000; $4600
6. Australia: 24,000; $4900
7: Switzerland: 17,000; $4000
8: Slovakia: 16,000; $3900
9: Sweden: 16,000; $4500
10:Israel: 13,000; $5700
11:France: 11,000; $5100
12: Romania: 8,000: $3100
13: Denmark: 4,000: $2800
14: Norway: 3,000: $3700
All other countries: 18,000
Total: 462,000
The low remittance from UK and Denmark might indicate that the workers there are more likely to stay with their families.
The second trick is to move some of the unemployed to the employed camp using the “közmunkás” category F. F is only an implicitly given number that can be calculated from the data of KSH.
The third problem is that some numbers are contained in moving averages, while others are disclosed every month. Here are the numbers for the three-month average of October-December 2013 [2012]* or for December 2013 [2012] :
E = 1825.7 [1791.7], +1.90% change during 2013,
R* = 785.6 [ 812.3], -3.29%
S* = 439.2 [ 454.9], -3.45%
N = 99.6 [ 104.5], -4.69%
G = 686.6 [ 658.9], +4.20%
F = 178.5 [ 86.9], +105.41%
A = 99.4 [ 91.4], +8.75% [the data is on page 6]
If we add these apples and oranges together, we can come up with the victory propaganda numbers of “Employment” = 4114.6 [4000.5], +2.85%
But if we discount the “fostered” workers and the workers abroad included in the statistics, the growth in employment equals the less than great number of 0.38%.
Conclusions
So what do the numbers tell us? First of all, a lot of numbers are not public. Some numbers contradict each other.
Still, we are able to conclude that
1. The GDP growth in constant prices was 0.2% without agriculture in 2013. If agriculture is counted, the 1.1% growth in HUF becomes a 0.5% decline in EUR.
2. The Orban government has increased the debt to an all time high. The total debt growth since 2010-05-31 amounts to 31.06% in HUF or 14.80% [using ECB exchange rates] or 15.10% [using MNB exchange rates] in EUR, if we include the spent retirement funds.
3. The general government deficit reached a record high of €4.34 billion in 2013.
4. The number for the Maastricht deficit criterion was 4.42% in 2013.
5. The domestic employment without the “fostered” workers increased by 0.38%.
—-
P.S. Today, on March 18, 2014, Hungary sold $3 billion of new debt at 5.5% yearly interest. The official gross debt/GDP ratio will reach 84% to 85% at the end of March.
The 10-year bond premium over the 10-year US Treasury note. The data are from Portfolio.
2010: 2.65% (January)
2011: 3.10% (March)
2012: —-
2013: 3.45% (February), 3.25% (November)
2014: 2.875% (March) [over the US Treasury notes]
Hungarian Spectrum 