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Hungary fights for fiscal room as forecast ignites ‘family feud’

Hungary’s government, mounting a pre-election campaign to exit European Union monitoring for budget offenders, said a central bank report to be released today forecasting a rising debt level was “unethical.” The National Bank of Hungary's report damages the country’s interests and is part of a “family feud” between the government and the regulator, Economy Minister György Matolcsy, a favorite to take over as central bank chief next month, said in Budapest yesterday. The central bank’s “upcoming analysis forecasts that the debt level will rise again in Hungary,” Matolcsy said at a conference in Budapest yesterday. “This is unparalleled, immoral, unethical and in a very big way hurts the central bank’s stature, the Hungarian financial system and Hungary.” The central bank rejects the criticism and stands by the forecasts of its staff, which are “well-grounded and objective,” the MNB said yesterday in e-mail. While Matolcsy yesterday claimed Hungary has “emerged from the debt trap,” the European Commission and the central bank have questioned the sustainability of the policies that reduced the highest debt level in the eastern EU. The measures included the nationalization of private- pension fund assets and retroactive extraordinary taxes on industries, including Europe’s highest bank tax. Those contributed to dwindling investments and lending, pushing the economy into its second recession in four years in 2012. The economy’s potential growth rate is near zero, according to government estimates. Investments will be 17.6 percent of gross domestic product this year, the lowest since 1992, the IMF forecasts. The European Commission in November estimated Hungary’s 2013 budget deficit at 2.9 percent of GDP and predicted it would widen to 3.5 percent in 2014. The public debt level fell to 79 percent of GDP at the end of last year from 81.4 percent in 2011, the central bank said on Feb. 18. It rose in the fourth quarter from 78.6 percent in the previous three months, snapping four consecutive quarters of decline. The EU’s average was 85.1 percent at the end of the third quarter, according to Eurostat.