Hungary’s budget deficit will probably significantly overshoot the government’s target next year, reaching 4.4% of economic output as flagging growth endangers the Cabinet’s fiscal plans, reported Bloomberg quoting Nomura Plc.The government, meanwhile, forecasts a 2.5% deficit in 2012.
The risk is that plans to keep the budget in check as the economy slows will “derail” and the government will “suspend existing reform plans that are of a more positive structural nature,” said economist Peter Attard Montalto.
Despite a series of measures to lower the budget gap and state debt, the weakening of the forint threatens to further undermine domestic demand as households’ repayment on Swiss franc-based mortgages soar. Hungary’s growth potential may drop by as much as 0.5% if the strength of the Swiss franc versus the forint persists, Mihaly Varga, chief of staff for the prime minister, said in an interview with Gazdasagi Radio last week.
The administration of Prime Minister Viktor Orban is likely to introduce “further one-off, growth reducing measures,” said Montalto.“We will see further industry and banking taxes together with further spending cuts for government agencies and revenue reallocations,” he added.