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MNB projects 2018 deficit slightly under target

Hungaryʼs general government deficit could reach 2.2-2.3% of GDP this year, a little under the 2.4% target in the Budget Act, the National Bank of Hungary (MNB) said in a biannual report on Monday, cited by state news agency MTI.

The central bank said in its Public Finance Report that its projection would depend on whether reserves in the Country Protection Fund are tapped.

Tax revenues are expected to exceed the target in the Budget Act by the equivalent of 0.6% of GDP, supported by revenue from corporate taxes, as well as taxes on consumption and on labor, according to the report.

Pay rises pushed forward in the healthcare sector, vouchers awarded to pensioners, a subsidy for winter utilities bills and higher spending by budget-funded institutions could lift expenditures over targets, but these effects could be countered, in part, by lower than expected spending on fostered work programs and disability payments, the central bank added.

The MNB said the deficit target of 1.8% of GDP in the 2019 Budget Act is achievable, but projected that revenue would be under the target by the equivalent of 0.2% of GDP as wage growth slows, affecting payroll tax targets. This could be balanced by higher European Union transfers and lower co-financing costs for EU-funded projects, it added.

The central bank sees Hungaryʼs state debt as a ratio of GDP declining to 72.4% at the end of 2018, and approaching 70% at the end of 2019.