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MNB optimistic on long-term national debt

MNB

The National Bank of Hungary (MNB) forecasts a stronger reduction in the country’s national debt over the next two decades than has been achieved in recent years, Magyar Nemzet Online reported yesterday.

Based on the central bank’s 20-year projection published yesterday, the ratio of gross government debt to GDP will decrease by an annual average 1.5 percentage points, shrinking to 45% of GDP by the year 2036.

From the debt-to-GDP ratio of 75.3% measured at the end of last year, MNB calculations show that Hungary will reach the 60% debt level expected under the EU’s Maastricht criteria by 2024, preceding by three years the date forecast in this year’s Fiscal Sustainability Report of the European Commission.

The MNB forecast stresses that, based on its technical projection, the 50% debt-to-GDP ratio target prescribed in the Fundamental Law of Hungary (the Constitution) will be met by 2031.

The MNB’s projection is based on the assumption that real GDP growth over 20 years will in itself reduce the debt ratio by 31 percentage points, the report says. It adds that while the primary budget surplus will contribute almost 20 percentage points to the debt-to-GDP reduction, interest payments will increase the debt by a total of a little over 20% of GDP until the end of GDP 2036.

In mapping the course of debt over the next two decades, the MNB study also makes the assumption that the 1.7% and 2.4% deficit in public finances in 2016 and 2017, respectively, will decrease to 1.5% of GDP between 2018 and 2020, in accordance with the projection outlined in the convergence program. It then takes this latter value as its expected long-term deficit target from 2021 until the end of the forecast period.

The MNB likewise applies a technical assumption to GDP growth, projecting a rate of growth of around 3% until 2020, thereafter settling to the currently estimated potential level of around 2.5%.

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