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Hungary's financial situation critical, FT says

Hungary is in a critical financial situation, the London-based Financial Times said on Monday.

It is not likely that a recent increase in the National Bank of Hungary's base rate or a government package including tax hikes will counterbalance the country's soaring public finance deficit, the paper argued. As a result, Hungary may become “the sick man of Europe,” the paper said, arguing that “the economy's fault lines are widening,” in the wake of large capital inflows that have led to debt and consumption growth increasing the current account deficit.
The government's efforts to rein in the budget deficit, estimated to be over 10% of GDP in 2006, are “too little, too late,” FT said. A package of financial laws passed by parliament last week concentrates on increased revenues, which will slow economic growth down and many of the measures will not have a tangible effect before 2008, the European Union's deadline for Hungary to reduce the public finance deficit below 3% of GDP, a prerequisite for joining the euro-zone, the paper said. The fiscal consolidation package also fails to address the main source of the budgetary shortfall expenditure, particularly the inefficient and over-generous social security system, the paper said.
Hungary is not just in a worrying condition, but is on the critical list, the Financial Times concluded.