Finance Minister Mihaly Varga – Photo: Facebook

Finance Minister: Economy ‘over the hump’

The government's measures have helped ensure that the country's external financing capacity, consumer price index and real wages start moving in the right direction, Finance Minister Mihaly Varga told an economic policy forum organised by the Hungarian Chamber of Commerce and Industry (MKIK) on Monday.

Varga said the government had embarked on an economic policy that would cut the budget deficit to 3 percent of GDP over the next 3-4 years. The government targets a deficit of 4.5 percent in 2024 and 3.7 percent in 2025, and sees it falling to 2.9 percent in 2026, he said.

He identified the public debt as one of the most significant risks to the economy. Though the debt started to fall again after rising during the pandemic, the government must continue reducing it, he said. Varga also highlighted the burden of interest expenses, which he said could be reduced owing to an improving interest environment on the back of falling inflation.

The minister said public debt financing was “on a more stable and secure footing than earlier”. The ratio of retail bonds has reached 22 percent from a mere 3 percent in 2010, he said, adding that residents had a total 10,000 billion forints in government securities.

Varga quoted the European Commission as saying in a report that the Hungarian economy was set to steadily gain momentum in 2024, while Hungary’s GDP growth could be one of the highest in 2025. He said Hungary’s level of output level returned to pre-pandemic levels by mid-2021, which “most EU countries have not been able to do”.

Among positive developments, Varga mentioned a “rebound” in the current account and lower energy prices that were a panacea for businesses. He said it was important to improve confidence indicators. He said the consumer confidence index had been improving since October 2022, adding that the goal was to “ease the reservations of entrepreneurs”.

Varga said that whereas Hungary had one of the most open economies in the world, its composition was “extremely complex” in a favourable way as it enabled “some sectors to counterbalance recession in others”.

Hungary is one of the few OECD countries with a corporate tax lower than 10 percent, the minister said, adding that planned changes and ones already under way would further reduce red tape for businesses.

Concerning exports, the minister said their structure had considerably changed as a result of the government’s Eastern opening strategy. He said Hungarian exports to Germany accounted for 26 percent of the total volume as against an earlier 32 percent, because the total volume increased considerably due to an increase in the volume of goods exported to Eastern markets.

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