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Finance Ministry says budget deficit could be 7%-9% of GDP

Debt

Graphic by AlexLMX / Shutterstock.com

Based on the slower-than-expected performance of the economy in the second quarter and the new economic protection measures planned, the budget deficit could be 7-9% of the gross domestic product, the Ministry of Finance announced in a statement, according to portfolio.hu.

Photo by AlexLMX / Shutterstock.com

The Ministryʼs statement justifies the huge increase in the deficit target on the grounds that the governmentʼs goal is for the Hungarian budget to fully cover the expenses of epidemic control and economic protection in the future as well.

In other words, the general government deficit as a share of GDP is basically raised to such a high level by three factors: direct costs of combating the epidemic, economic recovery measures to offset the economic effects (both past and planned), the economic downturn, which raises the deficit target by keeping the level of GDP lower than expected through the denominator effect.

The Ministry points out that the economic performance in the second quarter (the economic downturn was 13.6% on an annual basis) fell short of expectations.

The economic slowdown and the tax cuts made so far together will reduce the annual revenue of general government by more than HUF 1.4 trillion, which could amount to about 3% of this yearʼs GDP.

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