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Commission says Hungary balance “broadly stable”

The European Commission said Hungary's budget balance was “broadly stable” in 2009, but urges further reforms.

The Commission added that the country should improve the quality of public finances and moderate expenditures through a further reform of public administration and structural reforms addressing loss-making enterprises in an assessment of Hungary's updated convergence program published on Wednesday.

The negative effects of the global economic downturn on Hungary's fiscal balance in 2009 were broadly compensated for by spending cuts, the Commission said.

Hungary's convergence program targets a deficit of 3.8% of GDP for 2010, and targets the deficit ratio to drop to 2.8%, below the respective 3% Maastricht criteria next year, and to drop further, to 2.5% for 2012. But the targets rely on measures “that have not been fully specified in the program,” the Commission noted.

Government debt is set to peak in 2010 at 79.0% of GDP, then fall to 76.9% next year and to 73.6% by 2012. Deducting the already called but unspent part of Hungary's IMF and EU loan, the debt ratios come to 76.3% at the end of this year, to 75.2% in 2011 and to 73.1% in 2012.

The Commission said budget outcomes could be worse than expected in 2011 and 2012 because of “slightly optimistic” growth projections. Spending targets are also subject to risk because of the lack of specific decision backing consolidation measures, it added.

After a 0.3% contraction in 2010 the updated plan projects Hungary's GDP to grow by a sizeable 3.7% next year and by 3.8% in 2012. The government changed its 2010 GDP projection since January, and it now expects this year's GDP to fall l rather by 0.2% this year.

The 2010 inflation projection in the updated plan is 4.1%, just a touch down from 2009 annual average inflation of 4.2%. Inflation is forecast to slow to 2.3% next year and to pick up slightly to 2.6% in 2012.

The updated plan projected a 0.2% of GDP current account deficit which is seen to grow to 0.9% of GDP next year and to 1% in 2012.

Hungary is seen to have an external financing capacity in the three years ahead under the January update: a financing capacity of 1.6% of GDP this year with the ratio to fall just a tenth of a percentage points both in 2011 and 2012. The crisis turned a traditional external financing requirement, reaching 6.2% of GDP in 2008, into a financing capacity last year. (MTI-ECONEWS)