Hungary: Government debt reduction to be slower than planned

The new convergence programme will be submitted to the EC on Apr 30 and it will envisage a slower government debt reduction path, economy minister Mihaly Varga said for the daily Vilaggazdasag. The government projected a small debt reduction this year to 75.1% of GDP at end-2016, according to the spring fiscal notification. For comparison, the 2015 convergence programme expected debt to decline to 73.9% at end-2016 and to 71.3% at end-2017. We think that the higher-than-expected debt at end-2016 could be partly explained with the EU fund suspension last year but Varga’s statement suggested that the debt reduction efforts have been rather side-lined. This could be due to the government entering election campaign mode, in our opinion, taking into account the apparent fiscal loosening in 2017 with the planned budget deficit expansion to 2.4% of GDP.

The increased budget deficit should be related to the planned tax cuts, public sector wage increases and the HUF 100bn expansion of the house subsidy programme, the portal commented. The VAT rate cuts on poultry, eggs, dairy products, internet and catering services will cost the budget HUF 70-75bn next year, Varga said. He underlined that government debt will continue to decline despite the planned deficit next year.

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