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FinMin estimates 6.4% fall in GDP for 2020

Hungaryʼs GDP could fall by 6.4% this year, according to the Finance Ministryʼs calculations, the head of the portfolio, Mihály Varga, said at annual hearings before parliamentary committees this week, according to a report by state news wire MTI.

Varga said the economic recovery from the coronavirus crisis would be slow, but added that Q2 2021 could be a turning point, as the matter of a vaccine becomes clear.

The Finance Ministry is drafting a financial script for 2020-2023 that outlines the governmentʼs plans for returning to the fiscal path characteristic of earlier years, Varga said. It aims for economic growth, while placing emphasis on tax cuts and keeping the deficit in check, he added.

He said the ministry puts this yearʼs general government deficit at 8-9% of GDP, acknowledging that expenditures of the Pandemic Defence Fund, initially earmarked at HUF 426 billion, had reached HUF 747 bln, while expenditures of the Economic Defence Fund, with an initial allocation of HUF 942 bln, had reached HUF 2.059 trillion.

He put the shortfall in tax revenue because of the pandemic at around HUF 1.4 tln.

He stressed that in the present circumstances far more people are concerned about losing their jobs than the coronavirus. "At such a time, the deficit is not the primary focus," he said.

Fielding questions from committee members, Varga said there is room for "targeted" VAT reductions, while the government "continues to maintain the principle" of reducing the personal income tax rate. 

He said a reduction in the VAT rate on home construction to 5pc would cause a direct HUF 100 bln-120 bln shortfall in budget revenue, but added that it would be recouped because of the higher number of homes built as well as the satisfaction of new homeowners.

Varga said the government has no exchange rate target and continues to "adapt to the market". It has no target date for joining the eurozone, he added.