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Government debt at 74% of GDP at end of H1 - ÁSZ

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The government debt to GDP ratio stood at 74% at the end of the first half of the year, calculated according to European Union ESA 2010 methodology, down by 0.1 of a percentage point compared to the start of the year, Hungaryʼs State Audit Office (ÁSZ) said in a report on the budget Wednesday.

The office predicts that the debt to GDP ratio will fall in 2017 even as the budget deficit could be HUF 76-108 billion higher than expected because of a HUF 32-48 bln lower revenue figure and HUF 44-60 bln higher expenditures than forecast, state news agency MTI reported.

Based on the January-June period, the ÁSZ expects budget revenues from VAT, excise tax, the simplified entrepreneurial tax and mining royalties will be slightly lower than expected, but revenues from taxes on financial transactions and other central governmental revenues could be up.

The report found a significant implicit reserve for the government debt ratio, which would provide adequate coverage if the planned deficit were to be slightly higher than expected, or GDP growth lower than expected.

The ÁSZ noted that the Country Protection Fund - a special budget reserve that serves as risk insurance against unforeseen events that could cause a deficit overshoot - still holds HUF 66 bln which can be utilized. These reserves could cover a significant part of the risk identified for the remainder of the year, it added.

The office also said that the report does not give the exact financial numbers for the risks associated with revenues and expenditures for EU subsidies, given uncertainty factors like the pace at which funding is forwarded.

The report added that macroeconomic indicators in H1 only differ slightly from the values projected by the government. The office said GDP growth in H1 averaged 3.6%, below the 4.1% annual growth forecast of the government, with industry and services responsible for economic growth in the first six months of the year. The 2.3% inflation rate was in line with expectations.

In the second quarter, household consumption was up 3.3%, with investments up 21.2% annually. The foreign trade balance continues to be positive, but imports are rising at a higher pace than exports, according to the audit office.

Net financial assets of households grew by 4.3% in H1 to HUF 1,535.2 bln, the ÁSZ added.

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