Gergely Gulyas – Photo: MTI

Gulyas: Foundations of economy ‘stable, strong’

The foundations of the Hungarian economy are "stable and strong" despite "difficulties reflected by the markets or the forint rate", Gergely Gulyas, head of the Prime Minister's Office, told a regular weekly press conference on Thursday. Gulyas said that Hungary's industrial output had been 9.4 percent higher in May than in the same month last year. He added that the country had reached full employment, government revenues had increased and "a large part of them will probably prove to be under-planned".

He insisted that the government had taken all measures to ensure stability of the budget, and the deficit targets could be met both this year and in 2023.

Gulyas said the exchange rate of the forint was heavily influenced by energy prices, primarily the price of gas, adding that the euro had also weakened against the dollar. “All that is caused by the war and the sanctions (against Russia) from which the whole of Europe suffers,” he said, noting that even Germany’s trade balance was in the red.

Concerning inflation, Gulyas said Hungary was “doing somewhat better” than other countries in the region, but added that the exchange rate of the national currency was “somewhat worse”.

On another subject, Gulyas said the government had made progress in talks with the European Commission concerning Hungary’s access to the EU’s recovery funds and adopted the EC’s positions in four areas.

The government will reduce the ratio of public purchases with a single bidder below 15 percent, and ensure legal remedy at a law court against the prosecutor’s decision in corruption cases, Gulyas said.

The government will also ensure broader social consultations before submitting draft laws to parliament, and will reduce the number of fast track legislative procedures, he said.

The government has agreed to dedicate a significant part of community funds to efforts aimed at increasing Hungary’s energy independence, Gulyas said. Once there is an agreement on recovery funding, Hungary could also apply for an EU loan before August next year, which could entirely be spent on building energy independence, he said. The government is aimed at “reaching an early agreement through adopting the commission’s recommendations”, Gulyas added.

The minister slammed Hungary’s leftist MEPs for “intensely lobbying” to prevent an agreement on the recovery fund, and insisted that the European Parliament’s Wednesday resolution on Hungary was proof of such efforts. He insisted that the leftist parties would “prevent the country from accessing funds to increase the wages of teachers or health care workers”. “This, in a wartime situation, is unprecedented irresponsibility,” he said.

The government is considering ways to reduce energy dependence, such as restarting now defunct blocks at the Matra Plant, Gulyas said, adding that three new gas turbines could be constructed in the next 2-3 years, while the government will also propose increasing the life span of the older nuclear blocs at Paks.

The government is planning to increase domestic gas extraction from the current 1.5 billion cubic metres to 2 billion, Gulyas said. He said that increasing gas prices now made profitable extracting shale gas at Mako, in southern Hungary. Hungary’s current solar plant capacity of 3 gigawatts could also be doubled before the end of next year, the minister added.

The government will draft legislation to set up a special “border hunter” force within the police force, Gulyas said.
Border hunters will be prepared to stop violence along the borders, “and laws will have to be amended accordingly if necessary,” he said, adding that the interior ministry will look into the tools the contingent will be able to use, he said.

Initially, the contingent is planned to be 4,000 troops strong, he said, with 2,200 men recruited in the first campaign.

Border hunter officers will be ready to serve from September, after a brief training, he said.

Unlike in police, border hunters will not need a secondary school leaving exam, Gulyas said.

This will take the burden off the army and more persons will be protecting Hungary’s borders, he added.

Resources will be provided from the defence allocation, he said.

Since Hungary built a border fence in 2015, the European Union has funded less than 5 percent of border protection costs, “despite the fact that we protect the external borders of the Schengen Area and Europe as well as our own,” Gulyas said.

Although “we cannot count on Brussels when it comes to the border fence,” it will have to be developed further so it will be harder to scale with ladders, he said.

In addition to a recent increase in the number of attempted border violations, the border violators have been acting more aggressively than before, he said. He cited an armed conflict on the Serbian side of the border which claimed lives and added that armed migrants had several times attempted to cross the border fence.

Regarding talks with the EU, Gulyas said an agreement was expected in the autumn.

He insisted that the main obstacle to an agreement was the European Parliament, where “Hungarian leftist MEPs and their western comrades” did everything in their power to strip Hungary from the funds allocated to wage hikes for teachers and health-care workers.

The EP is also “connecting wholly unconnected issues” when they took a stance not to sign an agreement on Hungary’s recovery funding if the country continues to block the global corporate minimum tax, a step Gulyas said was “treading rough-shod on the European treaties”.

Responding to questions on the forint’s weakening over recent weeks, Gulyas said Hungary’s exposure to foreign energy resources is significant, albeit on the wane. State debt is also higher than that of other regional non-euro zone countries, despite downward tendencies, he said. Changes in the exchange rate have mirrored those two factors, he said.

The currency is determined by state debt and energy dependency, and Hungarian state debt is higher than the regional average despite the fact that it had fallen and that of other countries grown over the past decade, he said.

Forint is the weakest among regional currencies but Hungary’s rate of inflation is the smallest among the Visegrad countries, thanks to “price caps curbing inflation by 6 percentage points”.

The main factor weakening the forint is the gas price, Gulyas said. Energy independence and long-term supply chain security will calm the markets, he said.

An agreement on EU funds is expected to strengthen the forint but “we must not expect miracles in case of an agreement either,” Gulyas said. He added that Hungary has no financing difficulties, “and that is also obvious for the financial market”.

“There is no argument on the war being the cause of what’s happening with inflation and the currency rate,” he said. “We can’t stop those developments, only curb them.” Stopping gas price increases could “calm inflation”, but the Hungarian economy is stable and the government will keep the target deficit in any case, he said.

Regarding energy supplies, Gulyas said domestic gas storage facilities are filled up to 35 percent, and would hopefully become full by October.

On the issue of an embargo on Russian gas, Gulyas said that the “EU cannot go around Hungary”. He said “peace is usually born at the negotiating table” if two warring countries cannot win on the battlefield. The root of the problems in many Western countries is that sanctions on Russia had been expanded to include energy resources, he said. Hungary’s fuel supplies would be at risk without Russian oil, he added.

In response to a question regarding whether a wage hike was planned in the public sector, Gulyas said “we are trying to protect what we have achieved”. He added that “when better times arrive and the war is over” the government will want to maintain the rate of hikes applied in the past ten years.

Concerning extra resources to be granted to the health sector, he said that the sector had an 86 billion forints budget surplus last year and “the surplus might be less” this year. The current economic situation is changing significantly faster than in past decades, he added. “As a result, we cannot talk about further wage hikes,” he said, adding that the aim was to protect the country “from a situation caused by the war and an erroneous European response”.

Wages for teachers and members of the armed forces would be especially important to increase, he said.

Commenting on press reports about Justice Minister Judit Varga having talked about “significant austerity” at a closed meeting of the national judicial council, Gulyas said Varga had referred to cuts in ministries, showing that the government was cutting its own costs. Austerity is a measure that belongs to the left wing’s toolkit, he added.

Commenting on a recent opposition DK proposal to offer utility fee caps only to those in need, he said the left wing had always opposed utility fee cuts. The government’s aim is to expand family support, protect jobs, pensions and utility fee caps next year, “no matter how hard a year we are facing”, he said.

In response to a question on the increased budget for Hungary’s secret services, he said that “we are in a war situation and our borders are under much more threat than before, both of which requires strengthening the secret services”.

In response to a question about the reintroduction of conscription following Latvia’s example, he said no such proposal had been made at the cabinet meeting since he is a member.

Gulyas said only estimates were available about how many people fleeing the war in Ukraine stayed in Hungary but over 50,000 were ethnic Hungarians from Transcarpathia and a lower number were Ukrainians.

In response to a question about whether Prime Minister Viktor Orban accepted an invitation by the Ukrainian president to Kiev, he said no decision had been made so far.

Commenting on the recent increase in coronavirus infections, he said the increase was so small that no precautionary measures were planned.

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