The role of special purpose entities in the Hungarian economy and in statistics
The external debt and liability indicators which are important in terms of the external vulnerability of the Hungarian economy are significantly distorted if data on the so-called special purpose entities (SPEs) are taken into account. This is due to the fact that the gross external liabilities of SPEs amount to more than 100 per cent of GDP; taking these into account, the external liabilities of Hungary exceed 300 per cent. Accordingly, including SPEs results in a much less favourable picture of Hungary’s external vulnerability. Clearly, data that exclude SPEs are appropriate for economically sensible analyses, as these entities do not engage in any real economic activity, but typically perform a financial intermediary function. They forward funds originating from abroad to foreign companies, attaining considerable tax savings for their group of companies (taking advantage of Hungarian tax regulations). By international comparison, including data on SPEs significantly exaggerates FDI inflows and changes in the intercompany loans of Hungarian companies. Recently, however, several events have occurred that may reduce the risks related to SPEs. First, as a result of efforts by the MNB, beginning in 2011 numerous organisations (e.g. ECB, Eurostat, OECD) consider as standard data that excludes SPEs. Secondly, several measures have been taken recently that reduce the tax advantage attainable by SPEs; these are also reflected in the decreasing domestic activity of SPEs. Regarding external vulnerability, the declining presence of SPEs in Hungary results in obvious advantages, as the external liabilities of Hungary are decreased, and the risk assessment of the country may improve.
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