Euro at 300 Forint May Widen Hungary’s Deficit, Matolcsy Says

Hungary’s 2012 budget deficit would overshoot the government’s target by about 100 billion forint ($467 million), should the forint’s exchange rate stabilize at 300 per euro, Economy Minister Gyorgy Matolcsy said.

Interest payments on foreign-currency public debt would be 33 billion forint higher than planned, pension costs would rise by 23 billion forint while payments to the European Union would increase by 32 billion forint under such a scenario, Matolcsy said in a written answer to an opposition politician, dated yesterday and posted on Parliament’s website.

Hungary is cutting spending and raising taxes to narrow next year’s deficit as growth slows to avoid being downgraded to junk status. The 2012 budget draft, which targets a shortfall of 2.5 percent of gross domestic product, was calculated based on an exchange rate of 268.5 forint per euro.

The forint weakened 1.7 percent to 303.31 per euro by 4:22 p.m. in Budapest, the weakest since April 1, 2009. The currency depreciated 4.5 percent in the past month, the worst performance among more than 20 emerging market currencies tracked by Bloomberg.

A weaker-than-planned forint would increase budget revenue as inflation would accelerate, boosting tax income, according to Matolcsy’s answer. A 200 billion-forint reserve set up within the budget is sufficient to balance the exchange-rate risk, it said.

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