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Deficit to drop below 2% by 2014 under convergence plan

Hungary's fiscal deficit is planned to drop below 2% of GDP and its gross state debt is seen to decline to 65% of GDP by 2015 thanks to measures announced earlier in a structural reform package and outlined in the country's updated convergence program submitted to Brussels on April 15, Friday.

The government published the updated program on its website on Friday.

The targets compare to a ESA deficit of 4.3% last year and Maastricht-conform state dent of 80.2% of GDP at the end of 2010 as reported to the Eurostat on March 31.

The updated convergence plan cites the measures announced in the structural reform package, dubbed the Szell Kálmán plan, unveiled on March 1.

The measures affecting the labor market, the pension system, public transport, higher education, prescription drug subsidy system, public administration and local governments as well as – to a smaller extent – the revenue side will improve the balance of the public sector by HUF 550 billion in 2012 and HUF 900 billion annually from 2013 onwards. In 2012, four fifths of this adjustment will come from expenditure cuts and from 2013, three fourths of the improvement of the public balance will be expenditure related, the convergence plan says.

The updated plan repeats the earlier announced deficit and debt targets but falls short of the detailed annual deficits as announced by National Economy Minister Matolcsy on Wednesday and as revealed also in the Szell Kálmán plan. That program shows a general government surplus of 2% op GDP in 2011 (equal to a 2.94% deficit if cleared from the one-off effect of the transfer of private pension fund assets) and deficits of 2.5% in 2012 and 2.2% in 2013 and 1.9% of GDP in 2014.

The updated convergence program projects Hungary's economic growth to reach 3.1% this year and 3% next year before gradually picking up in 2013 and 2014 to 3.5% in 2015 under a conservative scenario contained in .

The updated program also shows a "dynamic" scenario under which GDP would grow 3.2% in 2011, 3.6% in 2012, would rise to 4.8% in 2013 and reach 5.5% by 2015.

The updated plan projects annual average inflation to drop to 4.0% this year and to 3.4% (in line with forecast in the National Bank of Hungary's latest Inflation Report) before stabilizing at 3% in the next three years. 3% inflation would be reached only in 2014 under the dynamic scenario.