Hungary’s Finance Ministry releases draft budget

MNB

A budget planning shows that Hungary’s Finance Ministry will prepare next year's budget based on a ESA95 general government deficit of 3.2% of GDP in 2009, in line with the respective target in the country's convergence plan.

The ministry announced last week it expects this year's deficit to drop to 3.8% of GDP, down from a targeted ratio of 4%.

The deficit is planned to drop to 2.7% of GDP in 2010, 2.2% of GDP in 2011 and 1.7% of GDP in 2012 under the convergence program.

The budget planning document noted that Hungary must decrease the deficit in line with the convergence plan in order to return to a long-term sustainable growth path, as well as to reduce its government debt ratio and inflation to the Maastricht criteria, thereby meeting the conditions necessary to introduce the euro.

As a result of the decreasing deficit, Hungary's gross government debt will drop from 2009 on after rising at a slowing rate since 2007.

The Finance Ministry document says that the general government balance will improve by the end of 2008 sufficiently to provide a foundation for a sustainable growth trajectory in 2009-2010.

The government will launch a new employment-incentive and growth-boosting program in the middle of 2008 to improve conditions for enterprises, according to the memo. The program will include steps to improve the business environment, to adjust the education system to needs, including more up-to-date professional training, as well as tax measures encouraging the creation of new jobs.

The above measures will help Hungary's growth rate, which temporarily slowed below 2% in 2007, to surpass again the EU average by 2010. Sustainable rapid growth from that year on will be driven by exports and investments.

After a strong restriction in 2007, domestic demand will gradually increase from 2008, and household income and consumption will gradually rise as wages increase in line of increasing productivity and employment grows. Government consumption will start to have a slight positive effect on growth in the years ahead.

Financing sources opening up as a result of the fiscal consolidation as well as increasing EU transfers could cause investment dynamics to speed up significantly by 2009-2010, when the investment ratio will gradually rise to the level of those recorded in converging countries.

Hungary's export growth is expected to slow with an expected global economic slowdown but is still forecast to grow at a double-digit rate. Import growth rates will get closer to export growth rates as a result of increasing domestic demand, but net exports will still contribute to growth, the ministry projected in the document.

The ministry expects steadily high food and global energy prices to slow the already started disinflation in 2008 and 2009. A tight monetary and fiscal policy and the negative output gap could put a break on price rises, and help inflation to drop close to the (3%) inflation target by the end of 2009. (MTI – Econews)

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