Author:
Vasvári Tamás,Pocsai Erzsébet
Abstract
In parallel with debt consolidation and the centralization of municipal responsibilities, the Hungarian government implemented both active and passive regulatory measures to mitigate public finance risks originating at the subnational level. This study offers a comprehensive overview of the developments in the financial situation, credit demand, and credit supply within the subnational sector over the past decade. Our findings indicate that the implemented measures have effectively met their objectives from a public finance perspective. The level of local government debt is notably low even by European standards, and the rate of indebtedness has decelerated by approximately one-third. Accordingly, the role of the local government sector has shifted from the active (lending) side to the passive side from a banking perspective, primarily shaped by liquidity management considerations. However, the economic upheavals witnessed in 2022 and the substantial budget deficit underscore the potential risks associated with an overreliance on central transfers. While the active oversight of local government credit transactions has successfully counterbalanced the positive effects of debt consolidation on credit supply, it is crucial to acknowledge that political considerations also influence the approval of loan transactions.
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