The budget deficit target of 1.0% of GDP can be achieved if budgetary reserves are partly saved, the National Bank of Hungary (NBH) said in its budget report. Spending all reserves would mean that the budget deficit would come at 1.4% of GDP, it estimated. The NBH noted that the draft 2020 budget had reserves of 1.0% of GDP, which was higher than in the previous years. The deficit target is 0.8pps lower than the 2019 deficit target and is also 0.5pps lower than the 2020 target in the Convergence Program from May, the NBH pointed out. Achieving the 1.0% deficit target in 2020 would be the lowest budget deficit since 1995, it added.
The reduction of the budget deficit means that fiscal policy will constrain domestic demand, i.e. it will work counter-cyclically, the NBH argued. It pointed out that the structural budget deficit will also decline strongly to 1.1% of GDP in 2020. The structural deficit will still deviate from the 1.0% medium-term budgetary objective but the rapid progress towards the MTO should still mean compliance with the relevant EU policy guidelines, the NBH stressed.
Some revenue might fall short of the plan in 2020 but the NBH expected that it might be offset by lower expenditures on EU programs and family support. The estimates for lower budget spending on family support, however, were rather related to different assumptions about the distribution of spending through the years. The expected revenue shortfall was explained with the lower GDP growth forecast of the NBH compared to the finance ministry’s macroframework.
The draft bill expects a 3.1pps reduction of the government debt-to-GDP ratio in 2020 while the NBH estimated a 2.6pps reduction due to more moderate economic growth expectations. Government debt will respectively reach 65.4% of GDP at end-2020, which will respect the debt rule in the Constitution, the NBH said.