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Technical projection indicates 2012 budget gap would exceed target by HUF 1,000 bln without gov’t measures

Hungary's general government deficit would exceed that targeted by HUF 1,000 billion in 2012 and HUF 1,400 billion in 2013 if the government took no measures, the Fiscal Responsibility Institute Budapest reported in its Technical Projection for 2011-2014.

The technical projection did not take into account the planned but un-adopted measures contained in the Széll Kálmán structural reform plan and updated Convergence Program, in line with its methodology, Balázs Romhányi, heading the new institute said.

Without any additional measure, Hungary's general government deficit would reach 5.95% of GDP in 2012, 6.59% in 2013 and 5.79% of GDP in 2014, well exceeding the respective targets of 2.5%, 2.2% and 1.9% of GDP, contained in the updated convergence plan.

The 2011 deficit could be a few tens of billions of forints lower than targeted this year, assuming that a HUF 250 billion stability fund is permanently frozen.

Romhányi, the earlier general director of the Fiscal Council's research division phased out late 2010, said that the institute found about HUF 80 - 100 billion government expenditures technically postponed from last December to 2011. He also noted that they could trace only HUF 230 billion suspended spending of the HUF 250 billion stability fund on the basis of publicly available data.

Without additional measures the government debt would be again on a rising track, and the unfavorable policy mix of a loose fiscal and a tight monetary stand would reemerge, the projection warned.

The technical projection's base scenario, assuming a 6% increase in external demand, showed GDP growth picking up from 2.4% this year to 3.6% next year before falling gradually to 3.1% in 2014.

Despite healthy growth, the institute's projection indicates that only 90,000 private-sector jobs would be added in Hungary between 2010 and 2014 without measures.

Romhányi noted that the updated convergence plan has outlined bigger deficit and debt reductions than those arising from the rules of Hungary's 2008 Fiscal Responsibility Act.

The technical projection has adopted -- with the limitation on access to confidential information -- the methodology used by the Fiscal Council's research staff in similar projections, and was prepared by former researchers working on a voluntary basis.