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Deficit could swell to 6.5% of GDP if Eurostat rejects off-budget motorway financing

Hungary's general government deficit could reach 6.5% of GDP in 2006, well over the target of 4.7%-5% of GDP, if Eurostat fails to approve the off-budget financing of some motorway projects, national daily Népszabadság said on Wednesday.

Eurostat earlier said it would allow Hungary to use external financing for motorway projects less than 50% completed. However, the State Motorway Management Rt (ÁAK), which has been mandated by the state to organize the financing for these sections, has included among them two sections - a stretch of the M35 bypassing Debrecen, and the Ordacsehi-Balatonkeresztúr stretch of the M7 motorway - which were completed in April and March, respectively.
ÁAK notes that only temporary permits have been obtained for the use of these motorways, and for this reason they can be considered less than half completed. If Eurostat fails to accept ÁAK's reasoning and does not approve the inclusion of the two roads among those being financed off-budget, it will mean additional budget expenditures of Ft 84 billion, Népszabadság calculates.
The National Bank of Hungary (MNB), however, argues that all of the roads in ÁAK's not-yet-half-completed group fail to meet Eurostat's requirements. If Eurostat does not accept any of the roads for external financing, budget expenditures would increase by a further Ft 330 billion, widening the budget deficit in terms of GDP by a further 1.5 percentage points, Népszabadság said. The National Bank of Hungary has already expressed its concern on the matter to the Finance Ministry and the Central Statistics Office (KSH), sources told the paper. All three institutions are responsible for statistics submitted to Eurostat.
When asked to comment by Népszabadság, Finance Ministry cabinet chief Ferenc Pichler said the central bank had not indicated any concern about motorway financing being organized by ÁAK. He added that the ministry is proceeding with the financing in line with regulations.
Népszabadság cited unnamed sources who said the dispute over which roads should be included in the not-yet-half-completed group is the reason for a delay in a Ft 600 billion bond issue by ÁAK to finance the motorways' construction. Because of the delay, ÁAK took out a Ft 90 billion bridging loan earlier in the year.