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Hungary’s Budget Needs to Plug Gap of 1% of GDP, Bank Says

Hungary’s Cabinet, which is overhauling its 2012 budget after cutting its growth and forint forecast, needs to trim the deficit by about 1 percent of gross domestic product to meet its target, the central bank said.

The 2012 shortfall may be between 3.4 percent and 3.6 percent of GDP, compared with the Cabinet’s 2.5 percent target, the Budapest-based bank said in a report today. The forecast takes into account the development of bond yields, the currency and macroeconomic trends, the report said.

Hungarian Prime Minister Viktor Orban last week cut the country’s growth forecast to ’’at most’’ 0.5 percent from 1.5 percent, citing slower expansion in western Europe, Hungary’s biggest export market. The country faces a shortfall of about 200 billion forint ($867 million) as a result, Economy State Secretary Zoltan Csefalvay said yesterday.

The government can narrow the budget gap to within 3 percent of GDP next year by scrapping its budget reserves, according to the report. Keeping the reserves intact and meeting the Cabinet’s 2.5 percent goal would require an adjustment of about 1 percent of GDP, the bank said.

The forint strengthened 1 percent to 303.26 per euro as of 4:06 p.m. in Budapest.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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