Inflation report puts fiscal deficit below target

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The latest inflation report of the National Bank of Hungary (MNB) puts this year’s ESA general government deficit at 2.7% of GDP, below the 2.9% official target. The projection assumed, as did the MNB’s earlier one, that all of the HUF 100 bln – 0.3%-of-GDP – reserves in the Country Protection Fund remain unspent.

The report puts the 2015 deficit at 2.6% of GDP, also 0.2% lower than the government target in the Hungary’s updated convergence program sent to Brussels at the end of April. Both deficit forecasts are down from the respective 2.9% and 3.1% deficit ratios projected in the March Inflation Report. The report explained the improvements with better-than-foreseen budget facts and improved growth prospects.

Most significantly, the MNB staff raised its forecast for revenue from wage-related taxes by 0.1% of GDP and revenue from consumption related taxes by 0.2% of GDP compared to the March forecast. They also calculated revenue from the new ad tax into the forecast. More-than forecast spending on public work schemes would raise spending by the National Employment Fund by 0.1% of GDP. They raised their forecast for the 2014 surplus of the local council sector by 0.1%-of-GDP; this effect will be offset by similarly higher spending elsewhere.

They left their forecast for 2014 interest rate spending unchanged as they expect savings from a significant yield fall will be offset by the expenses of the large pre-financing issues of the first half. The MNB published the quarterly report in full on Thursday after publishing the main inflation and GDP forecasts of the report on Monday. 

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