Hungary's cash flow-based general government deficit reached HUF1.7 trillion (€4.3bn) at the end of February, which accounts for roughly 70% of the HUF2.5 trillion full-year target, according to data from the Finance Ministry on March 8.

The ministry acknowledged that the 2.9% deficit target is unattainable in the statement explaining the reasons for the second-highest monthly budget shortfall, which comes after a HUF54.4bn surplus in January.

The central budget had a deficit of HUF1.76 trillion at the end of the month and the social security funds were HUF23.5bn in the red, but separate state funds were HUF79.0bn in the black.

The ministry noted that budget revenue last month was "several hundred billion" forints lower than in an average month due to the refund in VAT to companies and the impact of the 13-month pension payments, which reached HUF1.0 trillion in February, bringing pension payments for January-February to HUF1.4 trillion.

Interest expenditures, which included large payments on retail government securities, came to HUF855bn.

In the statement, the ministry added that it targets a deficit of 4.5% of GDP in 2024, 3.7% in 2025 and 2.9% in 2026, the ministry said.

The government revised the deficit target in the communiqué without referring to what its original deficit target was.

Analysts said that budget spending is generally front-loaded due to the seasonal factors in VAT reimbursements, but the February figure is at a completely different level.

While VAT payments could meet targets this year, the deterioration of the budget was mainly caused by excessive interest payments. Hungary’s debt expenditures last year accounted for 4.3% of GDP in 2023, compared to 3.8% in Italy and 3.5% in Greece, two countries with significantly higher debt burdens and are expected to reach 4.5% in 2024 due to the massive financing need of the budget but more importantly due to the surging rates as a result of the runaway inflation in 2023.

Hungarian households stocked up on the popular government securities that pay over 18% interest this year.

The government assumed a 4% growth this year in the budget approved in the summer, which was revised down to 3.6% in December. Recent forecasts point to lower growth given the weaker economic growth in the Eurozone.

There are also risks to meeting the revenue targets from the inflation side. The latest official budget calculates a headline 6% figure, but that could come lower if disinflation continues and consumer demand is lower than what the government expects

According to ING, there is a significant risk to this year's budget execution even with the revised deficit target.

In what seems to be a surprising move, the government has begun preparing the draft of the 2025 budget, which in line with the practice of previous years, could be adopted in the summer, but analysts note that the 2024 budget is already in tatters and needs revision, given the weak macro outlooks.