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Hungary approves budget draft, matches deficit plan

Hungary's government approved its 2007 budget, following a deficit-cutting plan endorsed by the European Union earlier this month.

The government, in a draft to be submitted to lawmakers next week, plans to cut the deficit to Ft 1.718 trillion ($8.2 billion) from this year's estimated Ft 1.75 trillion, Finance Minister János Veres said in a press conference in Budapest yesterday. Prime Minister Ferenc Gyurcsány’s government, struggling to meet demands to trim the EU's widest budget deficit, raised taxes and cut subsidies that triggered a month of protests and riots. Hungary wants to avoid a deficit overrun after missing its targets every year since 2001. „We planned with modest revenue and with realistic spending,” Gyurcsány said during the press conference. „We didn't put anything in the draft that would endanger the budget's execution.” The forint rose to 262.54 per euro by 5:14 p.m. in Budapest from 262.57 late on Tuesday. The currency has gained 3.98% against the euro in the past three months, the fourth best performance in Europe behind the Icelandic krona, the Turkish lira and the Slovakian koruna.

The government plans to set Ft 200 billion aside as reserves, most of which will only be available if ministries meet their quarterly spending plans, Veres said. Still, meeting the targets will be a challenge, said Moritz Kraemer, a managing director at Standard & Poor's. „The need for adjustment is so incredibly large that it will be difficult for the government,” he said in an interview during a conference in Brussels yesterday. The deficit-cutting plan is „too ambitious.” As a result, Hungary's credit rating may be reduced in the coming year, Kraemer said. Fitch Ratings and Moody's Investors Service both said last month they are more likely to cut the country's debt grade than to raise it or keep it unchanged. The EU earlier this month labeled Hungary's deficit-cutting plan through 2009 „realistic.” The government aims to cut the shortfall to 3.2% of GDP by then from an estimated 10.1%. Next year's target is 6.8%. Hungary must work toward those goals, the EU said.

„From the point of view of Hungary, there is no alternative,” EU Monetary Affairs Commissioner Joaquin Almunia said yesterday after a speech in Brussels. The Hungarian program „is quite ambitious.” „We have signaled” to Hungary that „to implement this program would not be easy.” Spending in 2006 is planned at Ft 13.33 trillion, rising 11.3% from an estimated Ft 11.98 this year. Revenue will grow 13.6% to Ft 11.61 trillion from Ft 10.22 trillion, according to the draft. The government maintained its forecast of 2.2% economic growth and 6.2% annual average inflation rate for next year, basing the budget calculations on the same figures as endorsed by the EU, Veres said. (Bloomberg)