Hungary Needs More Measures to Meet Budget Target, Moody’s Says

Hungary will probably need more measures to meet its budget targets as the lack of labor-market capacity make the government’s economic growth goals "very difficult" to reach, according to Moody’s Investors Service.

"The thing which concerns us more than anything is the poor demographics," Anthony Thomas, an analyst at Moody’s, said today in an interview in Prague. "If you look at the labor market, it’s a shrinking population, the participation rate is low, so in terms of generating strong growth it’s just very difficult to see where that’s going to come from."

Prime Minister Viktor Orban was elected last year on a pledge to boost growth and create 1 million jobs in a decade as the country with the European Union’s second-lowest employment rate emerges from its worst recession in almost two decades. Growth may accelerate to more than 5 percent by 2014, according to a "dynamic" scenario the government published on April 15.

Hungary has breached the European Union budget-deficit ceiling of 3 percent of gross domestic product every year since joining the bloc in 2004. Moody’s, Standard & Poor’s and Fitch Ratings all have the country’s debt at their lowest investment grade level with negative outlooks.

This year’s budget-deficit target is 2.94 percent, excluding the impact of private-pension fund portfolios transferred to the state, which will lead to a 2 percent surplus, according to government estimates. Hungary aims to narrow the gap to 2.5 percent next year and 1.9 percent in 2014 from 4.3 percent last year.

‘Difficult to See’

"If they’re relying on strong growth to get the deficit down, it’s just difficult to see that materializing," Thomas said while attending a conference in Prague.

Hungary last year imposed special taxes on the financial, energy, telecommunications and retail industries and channeled almost 3 trillion forint ($16.8 billion) in assets managed by private pension funds to the budget to narrow the shortfall and cut the highest public debt level among eastern EU members.

The country, which got an international bailout loan in 2008, plans savings reaching 900 billion forint ($4.8 billion) annually in 2013 and 2014, starting with 550 billion forint in 2012, to put budget financing on a sustainable footing, Economy Minister Gyorgy Matolcsy said on March 1.

The measures include a delay in a cut of the corporate income tax rate, the extension of a bank tax and tighter retirement and welfare rules.

"The government will probably have to take more measures in order to get the deficit down," Thomas said earlier today in a speech. "It’s very difficult to see the economy reaching the forecasts which the government has based its fiscal- consolidation program on."

To contact the reporters on this story: Krystof Chamonikolas in Prague at; Peter Laca in Prague at

To contact the editor responsible for this story: Douglas Lytle at

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