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EDP report deficit overshoot due to one-off factors, govt office says

Hungary's government is committed to this year's ESA deficit target of below 3%, and aims to reach it excluding one-off factors, and next year's 2.5% target is also achievable, the government spokesman's office told MTI on Wednesday.

The cash flow central budget deficit HUF 313bn in excess of the respective 2011 budget act target contained in the report that Hungary submitted to Eurostat as part of the European Union's excessive deficit procedure (EDP) reflects only one-off factors such as the consequences of a European Court ruling and accounting-related corrections, the office said in a statement, responding to a report in the Hungarian press.

The office added that the National Economy Ministry, in fact, expects the central budget position to come in HUF 28.5bn better than the amended budget target.

The EDP report, submitted to Eurostat on September 30 and published by the Central Statistical Office on its website, projected a cash flow-based central budget deficit of HUF 1,451.5bn this year, well over the respective HUF 1,138.1bn target contained in the amended 2011 budget act.

Business weekly HVG published a piece on its website on Wednesday in which it interpreted the higher figure contained in the EDP report as an acknowledgement by the government that the 2011 deficit target will not be reached.

The bigger factor behind the gap is the HUF 255bn in VAT that Hungary has to refund to businesses under a recent European Union court ruling by the end of this year, the government spokesman's office said in a statement.

The statement also noted one-off items of more than HUF 130bn stated as corrections, stemming from both domestic and foreign accounting corrections, as another factor explaining the gap.

The EDP report put local councils' cash flow deficit at HUF 150bn in 2011, HUF 40bn over the targeted shortfall.

The deficit of the state's health insurance and pension funds is HUF 7.8bn higher in the report than in the budget act, but the surplus of separate state funds is HUF 12.8bn over the target in the budget act. The deficit of the central government is HUF 308bn more than the HUF 1,184.2bn target in the budget act.

The National Economy Ministry said in its latest general government report, published on September 22, that it was standing by the cash flow-based central government deficit target for this year.

The government also said that a hypothetical downgrade of Hungary's sovereign rating by international ratings agencies wouldn't be justified on the basis of the country's economic and financial situation. The statement comes after Tuesday's announcement by Moody's that it is placing seven Hungarian banks on review for a possible downgrade, and Fitch Ratings voicing concerns on Wednesday about the Hungarian financial system's stability in the wake of government measures that would defer a large part of losses from foreign-currency household and municipal debt to the banking system.

The government reiterated its earlier claims that it will continue to take measures to stabilize the economy, including reducing public debt by one percentage point to 72% of GDP in 2012 and addressing the foreign-currency loan crisis.

National Economy Minister György Matolcsy said earlier that the deficit could be HUF 100bn higher because of slower-than-expected growth. The government announced on September 6 measures to plug the hole, including higher excise duties and gambling taxes, as well as more efficient tax collection and a freeze on public procurements until the end of the year. Parliament approved the tax increases a week ago and they are to come into force on November 1. The government has also issued decrees freezing public procurements and prohibiting the spending of residuals this year.