The global economic crisis has demonstrated that the debt outlook of most of the EU countries is unsustainable and several states need to carry out adjustments regarding their general government debt-to-GDP ratios and fiscal deficits.

Due to the increased risk-aversion of investors, countries which have not introduced proper measures in order to establish sustainable fiscal trends have not been favoured as investment destinations. Hungary has a highly favourable position in this ranking. With regard to the 2011 budget deficit and the reduction of the general government debt-to-GDP ratio in the first quarter of 2012, Hungary tops the list of observed EU member countries and although one-off items do impact both indicators, the trend is still impressive.

In comparison with EU countries – for which GDP growth data for Q2 2012 were available as well as gross general government debt figures as percentage of GDP for Q1 2012 compared to the same period of the previous year (latest available data) -- Hungary has achieved top position regarding fiscal adjustment. In the first quarter of 2012 gross general government debt of Hungary as percentage of GDP improved by 4.1 percentage points to 79 percent compared to the level of Q1 2011. Moreover, according to the latest data of the National Bank of Hungary (MNB), the ratio of Hungarian debt declined to 77.6 percent in the second quarter. Cutting government debt and fiscal adjustment tend to reduce public sector demand and thus hamper GDP growth, but in Hungary substantial general government debt reduction was coupled with marginally declining economic performance.

According to the latest relevant data for 2011 on the budget deficit-to-GDP ratio, a similar phenomenon can be observed as Hungary recorded the most favourable deficit indicator.

Baltic states have characteristically achieved the largest annual GDP growth rate, but that went parallel to ballooning gross general government debt-to-GDP ratios. Furthermore, the economies of these countries contracted significantly in 2009 (by 15-20 percent), therefore their performance has been much more volatile than that of other European countries. Analyzing the two factors together, Portugal can be considered the country with the most unfavourable indicators, as on top of an increase of 17.1 percent of the gross general government debt-to-GDP ratio, GDP declined by more than 2 percent. The upper left hand side side quarter of the table presents countries with the best compound scores (reduced debt, positive growth). Only Sweden and Germany could fit into this category. Finland, Bulgaria and Austria can also be mentioned among the good performers. Hungary has achieved an outstanding result in cutting debt.

It is of paramount importance to establish sustainable fiscal trends and the measures introduced to this end will have a positive impact on growth in the long term in those countries which can and will implement these policy instruments, such as Hungary.

(Ministry for National Economy)