Deficit target achievable with ‘robust’ spending control, says Fiscal Council

MNB

In a biannual opinion on budget trends released on Wednesday, Hungaryʼs Fiscal Council said the governmentʼs deficit target of 2.4% of GDP for this year is achievable but will require "robust control of expenditures, especially in the case of central budget-funded institutions."

While the target relative to GDP, calculated using the European Unionʼs accrual-based accounting rules, is achievable, the Fiscal Council said that there is a considerable risk of not meeting the cash flow-based deficit target, state news wire MTI reported.

The council pointed out that the cash flow-based deficit reached HUF 1.421 trillion at the end of June, already HUF 60 billion over the target for the full year. (Note: By the end of August, the deficit had ballooned to HUF 1.646 tln, some 121% of the full-year target.)

Achieving the target will require an acceleration of EU transfers and tighter control of spending, especially for allocations in independent budget chapters, the council said.  It noted a shortfall of almost HUF 800 bln on the revenue side as EU transfers have not caught up with government pre-financing for EU-funded projects, and added that revenues from corporate tax, VAT and excise tax are also under their respective pro rata targets.

The council said the level of state debt as a percentage of GDP was up at the end of the first half of 2018, compared to the end of 2017, although it attributed the increase to mid-year fluctuations. The year-end state debt ratio is expected to fall, as stipulated by the Constitution. The scale of the decline is also expected to be in line with the EUʼs "one-twentieth rule," which requires the state debt ratio over the 60% threshold to fall by that share or an annual average 5% over three years, it added.   

The governmentʼs 4.3% GDP growth target is expected to be achieved as growth is supported by external factors as well as government economic policy, a continued rise in real wages, household consumption, and pre-financing for EU-funded projects, observed the council. Higher oil prices, protracted Brexit negotiations, protectionist economic policy, and tensions over managing migration still present risks to the target, it added.

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