A fresh paper by the National Bank of Hungary (MNB) shows Hungary's general government deficit, calculated using the European Union's accrual-based accounting methodology, could be around 2.8% of GDP in 2011.
The government targets an ESA deficit of 2.94% of GDP for 2011.
Lóránt Varga, who headed the group that prepared the analysis, said the general government balance calculated on a cash flow basis and excluding local governments could be a bit better than the government target. The deficit target is achievable, but there are still macroeconomic and fiscal risks, he added.
Amendments in June to the 2011 budget act reduced the target for revenue from taxes and contributions by HUF 176 billion, bringing it to a realistic level. But the MNB's experts still believe the new target will be undershot, although the shortfall could be countered by a lower-than-targeted deficit in the social insurance funds.
If unfavorable risks related to fiscal trends and government measures materialize, they could worsen the general government balance by 0.5-0.6% of GDP, according to the analysis. The bank's experts said the most important among these risks was the withdrawal of stability reserves that could "cause financial tension" in the second half of the year. The slower-than-expected economic recovery, especially damp household consumption, could also affect the fiscal projection in the analysis, they added.
The study establishes that including the effect of the transfer of private pension fund assets of members who returned to the state pension pillar would result in an ESA surplus for 2011, while the cash flow-based deficit could reach 6.4% of GDP.
If the government is to achieve the 2.5%-of-GDP general government deficit target for 2012, when there will be no one-off support from the transfer of pension fund assets, it will have to make improvements to the balance on a scale of more than 2% of GDP, the experts said.
The MNB prepared the analysis for the first time as support for the revamped Fiscal Council, of which the MNB governor is a member.