A new study was prepared by HÉTFA Research Institute, commissioned by the Fiscal Council of Hungary, with the assistance of REKK Ltd. under the title: “Interaction between sustainable development and national budget through the example of water management”.

The study analyses the impact of water management on the long-term budgetary balance. The issue is becoming increasingly pressing as both decreasing natural resources and the impacts of climate change are becoming significantly risky issues in the area of long-term fiscal sustainability.

In case of making the use of natural resources, the main question is whether the management of economic instruments with state owned natural resources and stocks meets the criteria of preserved exploitation.

The study examines the operation and impact of water management on public finances along three lines of the sector:

  1. water utility functions; water and wastewater services,
  2. flood prevention,
  3. water resources management (groundwater and surface water as well).

Our work quantifies the impact of water utility investments on the country’s macroeconomic processes and especially on the budget by using the HÉFA-CGE model. According to the main results, without investments, the already underestimated value of the sector’s capital stock could be reduced to less than a half by 2035 which means that the total number of expected breakdowns and water quality problems could drastically increase. This requires costly adaptation by consumers furthermore it would negatively effect on the productivity of taxpayer sectors.

The study was presented by Gábor Balás, CEO of HÉTFA at the conference co-organised by the Fiscal Council of Hungary and The Hungarian Economic Association. The presentation is available here (in Hungarian).