Are you sure?

Deficit targets unchanged, revenues, expenditure reduced in convergence-plan update

The fiscal-deficit targets for the years ahead remained unchanged in a year-end update of Hungary's revised convergence plan, while both government revenues and spending have been cut compared to the September version of the plan, according to the update a copy of which leaked out to the national daily Népszabadság.

Hungary will send the update of its revised convergence program, submitted to the EU in September and approved by EU finance ministers in October, to Brussels on November 30, in line with the regular EU procedure, government spokeswoman Emese Danks said on Wednesday. Speaking on a morning television program, Ildikó Lendvai, head of the major coalition party MSZP parliamentary fraction said that there were only minor changes in the update which do not affect the macro-economic path set by the September plan. The revised convergence plan envisages Hungary meeting the Maastricht criteria by 2009. The update continues to target cutting Hungary's ESA95 general-government deficit from 10.1% of GDP this year, to 6.8% in 2007 and 4.3% in 2008, before reaching 3.2% in 2009, Népszabadság reported.

Due to a recent upward revision of GDP by the statistical office, the government debt-to-GDP ratio was revised somewhat downward over the whole horizon until 2010, though this still results in debt ratios of above 70% in 2007-2008 and a slightly lower 69.3% in 2009. The upward revision was not enough to affect the deficit ratios, according to the leaked document. Tax revenues in proportion to the GDP were, however, reduced slightly to 36.5% of GDP this year (instead of the 36.9% projected in September), with revenues projected to peak at 38.1% in 2007 before falling gradually to 37% in 2010. Under the September program, tax revenues were projected to peak at 39% only in 2008 before falling to 38.5% by 2010.

Expenditure was cut accordingly, with the update targeting a combined cut of 6.5% of GDP between 2006 and 2010 instead of a 4.6%-5.6% cut earmarked in September. The update does not, however, mention tax reform, and less expenditure comes from price-subsidies reductions (namely of transport), while costs related to state administration were increased compared to September, Népszabadság reported. This year's GDP growth was cut to 4% from 4.1%, but the GDP projections for 2007 and 2008 remained unchanged, with a drop to 2.2% in 2007 and 2.6% in 2008 before picking up to 4.2% (instead of 4.1%) in 2009.

The forecast for 2006 average inflation was increased to 3.9% from 3.5%, while remaining unchanged for the years ahead, which include a rise to 6.2% next year and a drop to 3.3% in 2008 and to 3% in 2009. Among reform plans, the update offers more detail regarding changes approved since the submission of the revised convergence program and slightly postpones the deadline for public administration reform - making them more realistic, Népszabadság noted. (Mti-Eco)