Finance Minister Mihály Varga (Illustration) – (Photo: MTI)

Finance Ministry: Government to reduce the budget deficit, public debt this year

Due to the need to increase spending to protect key programmes in the budget amid the current crisis situation, the government has decided to raise the budget deficit target to 5.2 percent of GDP, which is nevertheless 1 percentage point lower than the shortfall last year, the finance ministry said on Tuesday.

The ministry’s statement cited the “dangerous international situation” which had put the budget under extraordinary strain.

It cited the high cost of protecting subsidised household utility bills, while national defence spending hit 2 percent of GDP this year with the added pressures of the war in Ukraine.

The ministry noted that for years Hungary had asked the European Commission to reimburse the cost of protecting the EU’s external border, by now a bill of 650 billion forints. The deficit would be almost 1 percentage point lower if it did so, the statement added.

Also, it would make a big difference to budget flexibility if EU payments which Hungary is owed were unblocked, it added.

The ministry said that the “stable foundations of the Hungarian economy” meant that the country’s future outlook was positive, with employment still “extremely high” and exports at record levels.

The statement underlined that inflation would fall to single digits by the end of the year, while the current account balance was improving steadily. Hungary, it added, would return to a growth path by year-end.

The government is committed to improving the balance indicators and lowering the budget deficit and public debt each year, the statement said.

Finance Minister Mihaly Varga said that despite the prolonged war and energy crisis caused by sanctions, the government was determined to maintaining its policy of reducing the deficit and public debt in the years ahead.

Varga told a conference of the Joint Venture Association in Budapest that despite the extraordinary expenses, the budget would guarantee support for families, utility price caps and preserve the value of pensions. The government insists on maintaining the 2.9 percent deficit level next year, and public debt is projected to drop to 69.8 percent of GDP this year from 73.9 percent last year, he added.

“Wounds caused by last year’s high energy prices are being healed”, Varga said, adding that balances had started to improve, including the balance of services and the current account.

Chances are high that economic growth would pick up in the second half of the year, and inflation would drop to single digits in November or December, he added. All of this would lead to lower interest rates, he said. Growth is projected in the third and fourth quarters of this year, he said, and the economy would continue growing next year.

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