Hungary loses bout with Eurostat on state debt levels

October 24, 2017

Magyar Nemzeti Bank (MNB)

Hungary has lost its bout with Eurostat regarding the classification of state debt levels, reports Hungarian online daily For more than a year, the European Commission’s statistical agency has been pressing the Hungarian government to calculate its public debt levels in a manner that also takes into consideration the balance sheets of Hungary’s state-owned Eximbank, the Hungarian National Bank’s foundations, and various state-run guarantee funds.

In mid-July, the EU’s Committee on Monetary, Financial and Balance of Payments Statistics (CMFB), an advisory committee to the European Commission and the European Central Bank, released an opinion classifying Hungary’s state import-export bank, Eximbank, as a “captive financial institution controlled by government.”

As for the Hungarian National Bank’s foundations, now that their activities will be reclassified as activities undertaken by the state, it will be difficult for them to defend their practice of engaging in prohibited monetary financing.

The Hungarian government has been reluctant to adopt these EU rules and has classified the aforementioned entities as being part of the private sector, as any such adjusted calculation would inevitably result in raising Hungary’s public debt-to-GDP ratio.

EU Member States must report their EDP (excessive debt procedure) figures to Eurostat twice a year, at the end of September and March. What follows is a few weeks of back-and-forth written consultations between the agency and the Member States so as to clarify any discrepancies.

In other words, reports that realistic figures for Hungary’s public debt-to-GDP ratio would only be made public after April 28, weeks after Hungary’s national election expected on April 8. These adjusted figures would also be applied retroactively, as the activities undertaken by these entities stretch several years.