Hungary’s government will cut spending by HUF 200 billion ($867.6 million) this year to avoid overshooting its 2.6% budget deficit target due to a poor economic outlook, the government spokesman said.
Hungary’s economy is expected to slide into a recession of up to 3% this year due to a collapse in demand for its products in the euro zone. That will cut budget revenues, which the government now plans to offset via spending cuts. “We can be positive that the government will stick to the 2.6% of GDP deficit target... and if there are further steps needed, it will be ready to act,” government spokesman Dávid Daróczi told a news conference on Sunday.
The economic decline will cut tax revenues and foreign investors are watching closely whether the government will let the deficit slip or stick to its pledge to the European Union to cut it below 3% in 2009.
Confidence has yet to fully return to Hungary’s markets, which averted collapse only by way of a $25.1 billion IMF-led rescue loan in October. The forint currency, which closed near 290 versus the euro on Friday, hit a record low at €304 per earlier in the week.
Daróczi said on Sunday the government decided to cut ministries’ spending by HUF 60 billion and will determine where to axe a further 140 billion next week. It is also expected to announce details of a HUF 1,000 billion tax reshuffle next week to stimulate the economy, which some analysts say could face a much deeper recession in 2009 after industrial output fell by 19.6% in December. (Reuters, MTI)