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Hungarian central banker sees 2006 budget gap at 9.4% of GDP - extended

Hungary's budget deficit, the widest in the European Union, represented about 9.4% of gross domestic product last year, said István Hamecz, the chief economist at the country's central bank.

That is less than the government's revised target of 10.1%, which makes it easier for Prime Minister Ferenc Gyurcsány to reach his goals for this year and 2008, Hamecz said in an interview today during a Euromoney conference in Vienna. The deficit is measured using EU standards. The government, which has missed its budget deficit targets every year since 2001, now has a chance to perform better than expected, Hamecz said. „The prime minister is very committed to restoring the credibility, he won't allow fiscal loosening,” Hamecz said. „We have been convinced that the risks to the budget plan are on the downside and this only proves so much.”

Hungary on January 9 said its cash-flow budget deficit was Ft 2.03 trillion ($10.4 billion) last year, or 8.7% of GDP. That figure is a snapshot of the country's budget balance, measuring the immediate difference between revenue and expenditure in a given period. That is different than the measure monitored by the EU, which also includes other items, such as debt and guarantees in the books and will be determined later. The government plans to cut the EU-standard deficit to 6.8% this year.

While deficit targets in the next two years are within reach, Hamecz warned that Gyurcsány may loosen fiscal policies in later years, before the 2010 election. Tibor Draskovics, the government's commissioner on economic reform, pledged prudency. „I don't see anything major that could force us to change course,” Draskovics said during a panel discussion today at the conference in Vienna. „The current government has learned the lesson in a painful way that increased spending may be an effective tool before elections, but a very expensive one.” The government plans to enact legislation to tighten fiscal discipline, changing the way the budget is planned, forecast, approved, monitored, controlled and audited, Draskovics said. „We have started to work on establishing real fiscal discipline,” said Draskovics, a former finance minister. Gyurcsány will also announce new reform policies in a „few days,” he said. This year's decisions may include raising Hungary's retirement age, Draskovics added. (Bloomberg)