EC faults Hungary for ineffective action to achieve MTOs

All European Union countries are expected to reach their MTOs, or to be heading towards them, by adjusting their structural budgetary positions at a rate of 0.5% of GDP per year as a benchmark.

In June 2018, the EC recommended Hungarian officials take the necessary steps to ensure that the nominal growth rate of net primary government expenditures does not exceed 2.8% in 2018, which corresponds to an annual structural adjustment of 1% of GDP. It also said Hungary should use any windfall gains for deficit reduction.

On Wednesday, the EC proposed that the Council adopt a revised recommendation to Hungary to correct its "significant deviation" from the adjustment path towards the MTO. The EC also said it proposes a revised recommendation of an annual structural adjustment of at least 1% of GDP in 2019, noting that the general government deficit was set to increase to 2.4% of GDP in 2018, from 1.6% in 2016, and is forecast to remain slightly under 2% in the coming two years.

In a response to the ECʼs June recommendations, submitted by the October deadline, Hungaryʼs government said it would stand by the original deficit target of 2.4% of GDP for 2018.

"We plan to realize the medium-term deficit target without sudden, large-scale interventions into economic processes, relying on the effects of the high-rate growth of economy supporting the budgetary balance," the government said. Putting the economy on a path of long-term growth will reduce the deficit from 2018 and it will fall to 0.5% of GDP by 2022, it added.

The government noted that big measures to reduce the deficit would have a concentrated effect at the end of the year and "could have explicitly negative effects on the confidence of businesses and the population."