Fiscal Council Issues Opinion on 2024 Budget Draft

In the opinion posted on the website of parliament, the council said there were "no such fundamental objections that would justify signaling disagreement with regard to the draft"; however, it pointed to a number of risks surrounding the government's GDP growth and fiscal deficit targets.

The council noted that the 4% GDP growth assumption was higher than the average domestic and international forecasts and counted on the contributions of higher household consumption, a "dynamic increase" in investment, and export growth that outpaced that of imports.

The growth target could be achieved "if external and domestic conditions develop favorably", the council said but counted the negative impact of sanctions due to the war in Ukraine, energy security problems in Europe, and "prolonged" negotiations over Hungary's European Union funding among risks. Achieving the growth target would require private sector investment to compensate for the "significant" inflation-adjusted decline in public sector investments, while the increase in exports, albeit supported by new capacities, would need to be "well over" the pace of growth on export markets, it added.

The council acknowledged that the 2.9%-of-GDP deficit target is a full percentage point lower than the 2023 target and under the Maastricht threshold, but warned that budget revenue could be reduced if GDP growth falls short of 4%. It added that some revenue items in the 2023 budget, mainly those related to consumption, were expected to fall short of the targets, negatively affecting the base for the 2024 targets.

The council pointed to "serious risk" related to targets for material expenditures at budget-funded institutions that are "well under" the rate of inflation in 2022 and expected CPI in 2023 and 2024. Unplanned spending "on a large scale" could be required without steps to achieve targeted savings and rationalize tasks, it added.

A "modest" overshoot of expenditures and a "little" shortfall of revenue could raise the deficit over 3% of GDP, the council said.

It added that a bigger-than-targeted gap between expenditures on EU-funded programs and transfers from Brussels could weigh on the cash flow-based deficit.

The budget draft targets approximately HUF 3.607 trillion of spending related to EU-funded programs, paired with EU transfers for those programs of HUF 2.48 tln, the opinion shows.

The council faulted the draft for making no provisions to recapitalize the National Bank of Hungary (MNB), as required by law. It said that the central bank's net assets were expected to fall under its nominal capital by the end of 2023 as a result of economic stimulus during the pandemic and high interest rates.

The Fiscal Council said documents it had requested from the Finance Ministry showed measures to ensure the achievement of expenditure and revenue targets were being drafted. Informing lawmakers of these planned measures when the budget bill is submitted to parliament would be "expedient", it added.

The opinion acknowledged the advantages of drafting the budget in the spring and summer, but pointed out "limits to the predictability of macroeconomic conditions" at present that could require a re-draft later on, "limiting the budget's role as an economic compass".