Hungary Expects to Exit EU Budget Procedure on Deficit Cuts

Hungary has a “high chance” to exit the European Union’s excessive-deficit procedure as budget risks are manageable after last year’s gap was narrower than the government targeted, a government official said.

The deficit was 2.1 percent of gross domestic product last year, within the 27-nation bloc’s 3 percent limit and less than the Cabinet’s 2.7 percent goal, the statistics office in Budapest said yesterday.

“If Brussels looks at the numbers only, Hungary must exit the deficit procedure this year,” Zoltan Csefalvay, a state secretary at the Economy Ministry, said on public television M1 today. Reserves in the budget are sufficient to cover fiscal risks, he said.

Prime Minister Viktor Orban has made keeping the budget deficit within the EU limit and lower public debt the priorities of his administration. The Cabinet is seeking to end a recession and exit the EU’s probe for budget offenders, which would remove the threat of cuts in the bloc’s funding a year before elections.

The forint erased earlier gains and weakened 0.1 percent to 302.57 per euro by 2:46 p.m. in Budapest. The currency has depreciated 2.6 percent in the past month, the worst performance among more than 20 emerging-market currencies tracked by Bloomberg.

‘Macroeconomic Risk’

The government needs to deploy further measures to keep the shortfall within 3 percent this year, economists at Erste Group Bank AG’s local unit and MKB Bank Zrt., a unit of Bayersiche Landesbank AG said.

“The most important macroeconomic risk coming to the fore is that both inflation and growth will undershoot the government’s targets,” threatening tax revenues, Zsolt Kondrat, a Budapest-based economist at MKB Zrt. said in a phone interview today. Hungary needs corrective measures of about 200 billion forint ($851 million) to keep the gap within 3 percent, Kondrat said.

The central bank, under the direction of new President Gyorgy Matolcsy, reduced its budget-deficit forecast last week. The gap will be 2.9 percent of GDP this year and next, the bank said March 28. The government targets a shortfall of 2.7 percent while the EU projects a deficit of 3.4 percent for 2013.

“Hungary has a less than 50 percent chance to have the excessive-deficit procedure lifted without further measures,” Zoltan Arokszallasi, an economist at Erste in Budapest said by phone. The EU may have concerns that Orban will engage in a spending spree ahead of next year’s general elections, he said.

Hungary doesn’t need to enact more measures to meet its deficit target, Economy Minister Mihaly Varga said March 25, adding that the government was ready to act if data suggested more steps were necessary.

Matolcsy will hold a press briefing tomorrow, the bank said today. The Magyar Nemzeti Bank earlier last month said he would only address journalists after “strategic” decisions. Policy makers will hold an extraordinary meeting to discuss ways of helping the economy exit its second recession in four years, the Budapest-based newspaper Vilaggazdasag said today.

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