The EC Says Hungarian Balance ”Broadly Stable” But Calls for Further Reforms

In an assessment of Hungary's updated convergence program, the European Commission said Hungary's budget balance was "broadly stable" in 2009.

In an assessment of Hungary's updated convergence program, the European Commission said Hungary's budget balance was "broadly stable" in 2009, but added that the country should improve the quality of public finances and moderate expenditures through further reforms of the public administration and structural reforms addressing loss-making enterprises.
After three years of restrictive fiscal stance, the budgetary stance is broadly neutral in 2010 and 2011 and is even expansionary in 2012. The latter is not in line with the stability pact and should be corrected, the document said. 
Government debt is set to peak in 2010 at 79.0 pct of GDP, then fall to 76.9 pct next year and to 73.6 pct by 2012 according to the updated plan. Deducting the already called but unspent part of Hungary's IMF and EU loan, the debt ratios come to 76.3 pct at the end of this year, to 75.2 pct in 2011 and to 73.1 pct in 2012.
The Commission noted that budget outcomes could be worse than expected in 2011 and 2012 also because of "slightly optimistic" growth projections.
After a 0.3 pct contraction in 2010 the updated plan projects Hungary's GDP to grow by a sizeable 3.7 pct next year and by 3.8 pct in 2012. The government changed its 2010 GDP projection since January, and it now expects this year's GDP to fall l rather by 0.2 pct this year.
The 2010 inflation projection in the updated plan is 4.1 pct, just a touch down from 2009 annual average inflation of 4.2 pct Inflation is forecast to slow to 2.3 pct next year and to pick up slightly to 2.6 pct in 2012.
 

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