The economy can outperform the public debt

The economy can outperform the public debt

Public debt can be increased when the economic recovery and recovery are spectacular. The rate of economic growth is currently several times higher than it was in 2009, which may ensure a gradual reduction of the debt stock, Szabolcs Pásztor, professor at the National University of Public Administration and head of Oeconomus Economic Research, told VG. While final numbers for the last year are yet to come, it is almost certain that the recovery occurred almost immediately after a 5 per cent decline in 2020, with growth of about 6.5 per cent for the year as a whole. Gross domestic product could grow at a similar rate this year, and the government expects growth to reach 4 percent in the coming years.

Zappolks reminded Pachtor that after 2007-2009, the pace of economic growth was delayed for a long time, so it was not possible to expect a dizzying decline in the ratio of public debt to GDP.

He believes that the domestic economic policy has learned from the management of previous crises and is now trying to maintain the pace of economic growth resumed with strong fiscal stimulus. As a result, huge sums mobilized to restart the economy in 2020 and 2021, the budget deficit reached 5,000 billion Swiss francs in both years, but the public debt ballooned significantly: from 65.4 percent to 80.1 percent of GDP.

In this regard, the expert pointed out that it is fundamentally wrong to compare the increase in the budget deficit with the increase in the ratio of government debt to GDP,

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This is because public debt can rise even if the country’s GDP falls. In the initial period of the new type of coronavirus pandemic, this is exactly what happened in many countries: spending rose at the same time and economic performance fell, often dramatically. Thus, the indicators also deteriorated due to unfavorable changes in two factors, the analyst explained. In any case, the fact that the stock of domestic debt rose to more than 40 trillion HUF last year, twice as much as in 2010, the economy’s output expanded by a similar rate: this year, the GDP could reach 56 trillion HUF. Hungarian, which is more than double what it was in 2010. to a billion.

Photo: Miklós Szabó

We can’t just say that the deficit can be safely high, because we’re out of debt anyway. A disciplined fiscal policy and a gradual reduction of the deficit is needed,” Gábor Regős, Head of Macroeconomics Business at Századvég Gazdaságkutató Zrt., Told VG. According to the expert, it certainly played a role in the recovery of the economy and a larger-than-normal deficit was needed. “It is not a problem that if the deficit increases within a reasonable range during the crisis period, fiscal austerity will have to return again after the crisis.

He thought. The government has also taken steps in this direction, reversing this year’s deficit from 4.9 percent to 4.9 percent and next year to 3.9 percent. As a result of the deep cuts, the debt level could fall to 77 percent this year and drop to less than 75 percent in 2023.

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At the same time, Gabor Regus warned that debt financing is expected to become more expensive as interest rates rise, which could be a problem especially in countries that are heavily indebted and have higher risks.

Hungary is not an endangered country, and the level of domestic indebtedness remains in the middle of the union:

In 2020, Hungary’s public debt of 80.1 percent is below the EU average of 90.1 percent, compared to Greece (206.3 percent), Italy (155.6 percent) and Portugal (135.2%).

Photo: VG

Gábor Regős emphasized that revaluation takes time, i.e. the higher rate of interest does not appear immediately in the returns, in the case of fixed rate assets only when old securities expire and new securities are issued. Compared with the level of public debt, its composition is perhaps more important, since it affects its sustainability, for example, its share in foreign hands and foreign exchange. The Public Debt Management Center estimated the foreign currency ratio of public debt at 20.4 percent at the end of last year, although in 2011 it had reached 50 percent.

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