New convergence plan likely sufficient to unfreeze cohesion funds, says City
Hungary's updated convergence plan, submitted to Brussels on Monday, is likely to prove sufficient to lift Hungary from the Excessive Deficit Procedure and to unfreeze part of next year's cohesion funds that have been suspended by the European Commission due to insufficient deficit cut measures, London-based emerging markets analysts said.
Barclays Capital said that "in general", this appears to be a plan that the EC and the IMF are likely to accept as sufficient to reach the 2012 and 2013 deficit targets. It is likely that the EC and the IMF will raise questions regarding the effect of the various measures, and there are implementation risks that could lead to lower savings than the government forecasts.
However, since the government is aiming for deficits well below the 3% of GDP threshold, this gives sufficient cushion so that the targets can absorb potential downgrades to the revenue effect of measures, analysts at Barclays Capital said. "We think the EC will accept the program as satisfying the Excessive Deficit Procedure and withdraw the EU plan to withhold cohesion funds from Hungary ... This will also serve as a useful base for the IMF/EU negotiations should they begin", they added.
Economists at 4cast, a major London-based financial consultancy, said that the short-term macro path outlined in the updated plan "seems more or less realistic", at least as far as GDP growth is concerned, though a strong rise in the activity rate the report projects is "unlikely to come true".
The budget deficit projections for 2012 and 2013 also look feasible, given the new measures announced. In the current external environment, however, these plans "will not in our view add enough support to the government to sell Eurobonds at sustainable interest rates; therefore we still see Hungary in need of IMF policy support to put debt trajectories back on track", 4cast's analysts said.
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.