Developments in Government Interest Expenditure for Hungary, 2000–2015

In this study, we examine the changes in interest expenditure between 2000 and 2015, and in this context, focus particularly on analysing the impact of decreasing yields on the government securities market observed over the past three years. The annual change in interest expenditure can be categorised into several factors based on a methodology similar to the decomposition of government debt, and the summary discloses the details of the trends characterising the four periods which can be distinguished over the past 15 years. From among these factors, we gave precedence to the analysis of the changes in yields as this factor exerts a stronger influence on the developments in interest expenditure than any other factor. Based on a regional comparison, in addition to a supportive international environment, domestic factors have also strongly affected the favourable developments of the government securities market in recent years. From the Hungarian developments, we should highlight the fact that interest rate cuts together with the Self-financing Programme, which mitigated Hungary’s external vulnerability, has had a tangible impact on the developments in Hungarian government securities’ yields, and as such, due to the substantial contraction in interest expenditure, exerted a favourable effect on the balance of the general government. Finally, we also present the imputed interest expenditure entailed by the reorganisation of the pension system, and the study argues that these should be managed separately from actual interest expenditure.