May 3 (Bloomberg) -- Hungary needs to take additional steps this year and next if Prime Minister Viktor Orban’s government is to push its budget deficit below the European Union’s ceiling, the bloc’s top economic official said.
“By taking new measures the government can ensure the deficit will remain clearly below 3 percent this year and next,” Economic and Monetary Affairs Commissioner Olli Rehn told a news conference today in Brussels. Speaking about countries that may exit the so-called excessive-deficit procedure, Rehn said “Italy and Hungary can do it, provided that they stay the course of fiscal sustainability.”
Orban’s government rejected the EU’s forecasts for Hungary’s budget deficit, with Economy Minister Mihaly Varga saying today that the country stands a “good chance” to exit the deficit monitoring procedure in 2013.
The European Commission today cut its 2013 deficit forecasts for Hungary to 3 percent of gross domestic product and its 2014 projection to 3.3 percent. That’s down from a forecast of 3.4 percent for both years made in February.
Those estimates are still wider than the government’s projected deficit, which is 2.7 percent for both years. The EU requires countries to keep the deficit below 3 percent.
The risk for Hungary is that failure to cut the deficit fast enough may prompt the EU to suspend development funds, which finance 95 percent of Hungary’s infrastructure development projects.
“The government realistically expects that no decision will be taken to suspend Hungary’s development funds either because we convince the European Commission that our deficit will be below 3 percent or because the government will take additional measures that will convince the Commission,” Varga said.
The forint weakening 0.1 percent to 296.47 per euro by 5:35 p.m. in Budapest, snapped four days of gains. The currency has weakened 1.7 percent this year.
Since coming to power in 2010, Orban has sacrificed growth to keep the shortfall within EU limits and removed the threat of cuts to EU funding.
Hungary faces a “much smaller” fiscal challenge than a year ago and the government could be more successful in convincing the EU about the fiscal outlook, Janos Samu, economist at Budapest-based brokerage Concorde Zrt. said in an e-mailed note today. The government won’t succeed in exiting the deficit procedure until after a meeting of finance ministers in June, he said.
The commission’s new forecasts show that it expects the economy to expand 0.2 percent this year and 1.4 percent in 2014 after contracting 1.7 percent in 2012. The government sees economic growth of 0.7 percent this year.
Inflation will probably average 2.6 percent in 2013 and 3.1 percent in 2014, down from 5.7 percent last year, the EU said. The central bank targets 3 percent annual price growth.
Hungary should be allowed to exit the deficit procedure, Orban said today in an interview on public radio MR1-Kossuth. The EU is often “unjust” and uses “double-standards” by being flexible on budget rules for some countries, he said.
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