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Fiscal Council recommends more reserves, savings steps to meet 2021 deficit goal

The 2.9%-to-GDP general government deficit planned in the government’s 2021 budget draft is achievable but the government "should consider to temporarily set aside additional reserves" as a buffer against identifiable risks, the Fiscal Council said in its opinion on the governmentʼs 2021 budget draft published this week, according to a report by state news wire MTI.

The deficit is achievable if appropriate savings are made in the areas where spending is set to fall next year compared to the original 2020 targets, the council said. 

It also termed it indispensable to safely plan targets for uncapped spending items.

At the same time, the council praised the government’s plan to keep the deficit within the 3% threshold. Hungary could continue to catch up next year with its strong economic fundamentals and the measures to revitalize the economy, the council said, commenting on the draft’s economic growth projection of 4.8% in 2021, which, after a drop this year, could bring GDP over its 2019 level. 

The council said it did not consider a scenario in which a new wave of the epidemic emerged in the short run "as that would require a completely new-structure budget".

The council said that revenue plans are in harmony with the economic forecast, but recommended further calculations regarding specific tax revenue items with risks because of uncertainties of the economic forecast.

Free reserves in the draft cover less risks than the council had identified. These reserves total HUF 270 billion or slightly more than 0.5% of GDP, the council said, noting that the respective ratio for 2020 is 1%. As these risks are mainly related to this year, it proposes „that the government consider” setting aside a significant amount of additional reserves temporarily, which could be reviewed and, in a favorable case, released after May 31, 2021. Thereby both excessive reserving and an eventual mid-year tightening could be avoided, the council argued, acknowledging the cost of bigger reserves in terms of growth. 

The council said it accepted that, against both EU and Hungarian regulations, the gross state debt ratio will rise this year, to 76.2% of GDP according to the draft, before dropping to 69.3%, thus returning to the required falling trend.