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Analysts expect Fidesz to negotiate higher 2010 deficit target with IMF

Analysts told MTI after general elections concluded on Sunday provided Fidesz with an expected two-thirds majority in parliament that the party would be able to carry out structural reforms without making concessions, and would negotiate a higher 2010 deficit target with the International Monetary Fund after forming a new government in May.

Experts from Morgan Stanley's London-based investment division told MTI that talks with political analysts, economists, retail- and central-bank authorities and officials from Hungary's Government Debt Management Center in Budapest over the past two weeks reconfirmed that Fidesz understands that importance of cooperation with the International Monetary Fund.

The Morgan Stanley experts predicted that Hungary's new Fidesz government would negotiate a revised 2010 budget-deficit target of around 5% of GDP, compared to the current target of 3.8% of GDP. The new government will table reforms in exchange for a deficit target which is less detrimental to growth, “which is very different from an outright fiscal easing”, the experts said.

London-based specialists from Goldman Sachs (GS) said that Fidesz would gain support from the International Monetary Fund to formulate a new economic-stability program, noting that such a program would reduce Hungary's risk premium. Accordingly, GS scaled down its HUF/EUR exchange-rate forecast to 265 from the previously forecast 270 in three months time, to 265 from the previous 275 in six months and to 255 from the previous 275 in one year.

An analyst from the Coppenhagen-based Saxo Bank said that Fidesz would utilize its two-thirds majority in parliament to implement necessary reforms to Hungary's local-government system and to streamline loss-making state-owned companies, adding that such measures would provide the forint with a significant boost vis-a-vis the euro and generate an influx of capital.

CIB Bank Analyst György Barta told MTI that markets had already priced in Fidesz's two-thirds parliamentary majority, thus the final outcome of Hungary's general elections would not exercise a significant immediate impact on forint rates. Barta said that negotiations between the new Fidesz government and Hungary's international creditors would elicit a much stronger response from markets. The CIB Bank analyst said that Fidesz was almost certain to agree on a higher 2010 deficit target with the International Monetary Fund.

György Barta added that markets clearly expect the new government to maintain Hungary's current path of fiscal consolidation, enact structural reforms, raise employment and stimulate production-, export- and investment-based growth.

Dávid Németh of ING Bank commented that investors have recognized that the Fidesz government will have to raise the 2010 deficit target, noting that markets would tolerate an increase of the target to a maximum of 5%-5.5%. The market would respond adversely, however, if the government fails to start reducing the deficit next year, he said. (MTI-Econews)