Hungary Forecasts 2012 Recession, Announces More Austerity
Hungary's government announced Friday a set of austerity measures to keep its general government deficit below 3.0 percent of gross domestic product, as it recognized for the first time that the country would be in recession this year.
"The government has decided to take the necessary measures to keep the budget deficit figure under 3.0 percent of GDP in 2012, 2013, and 2014," Economy Minister Gyorgy Matolcsy told a press conference.
"The decision was necessary as Hungary will post negative growth in 2012 (of 1.2 percent) despite our forecast of 0.1-percent growth," he said, adding that the GDP growth for 2013 had been lowered to 1.0 percent from 1.6 percent.
The government deficit target for 2012 has been raised to 2.7 percent of GDP from 2.5 percent, and for 2013 to 2.7 percent from 2.2 percent, Matolcsy noted.
The European Union public deficit ceiling is 3.0 percent of GDP.
To ensure the target is achieved and the ceiling not broken, the government will freeze 133 billion forints (466 million euros, $611 million) in this year's budget, he said.
For 2013, the cabinet planned to save 397 billion forints, he added.
Another reason for the new fiscal measures was the government's decision not to extend a new financial transactions tax to include central bank transactions, Matolcsy said.
The measure was cited by the International Monetary Fund (IMF) and European Union (EU) as potentially infringing the bank's independence, and became an obstacle to negotiations with Hungary over a 15-billion-euro credit line.
"The measure wasn't tolerated by the EU which threatened Hungary with infringement proceedings if we had imposed it," Matolcsy said.
The government's program contains a reduction in state contributions to EU-funded projects to 5.0 percent from 15 percent, as well as cuts to pensions and public sector wages.
Retiring public service workers will not be replaced with only the health sector exempted, and a previously announced hike in teachers' wages has been postponed.
The national currency, the forint, rose sharply following the announcement from 284.5 to 281.5 per euro. By 1430 (1230GMT), the forint was trading at 282.3 per euro.
"The program is fine, there are no major mistakes," said Janos Samu, an analyst at Concorde securities, who added that the growth and deficit figures were "credible."
"The demands of the EU and the IMF have been taken into consideration, such as the scrapping of the tax on the central bank," he added.
The opposition Socialist Party (MSZP) had "warned the government for months that the budget was unsustainable and that additional measures needed to be taken," noted party spokesperson Sandor Burany.
"We were right. But we are not rejoicing, as it shows the government has just realized it is unable to prepare a proper budget," he told a press conference on Friday.
The European Commission will consider the new budget deficit targets for 2012 and 2013 and comment on November 7 "whether Hungary has taken effective action to correct its deficit," spokesman Olivier Bailly also said.
He added however that the Commission welcomed the dropping of the government's controversial plan to tax the central bank's financial transactions.
"We hope it will be translated without delay in a proposal to change the law and that it will be adopted in the next days," he said.
Source: Agence France Presse
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