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Mihaly Varga: This year's budget will change, and the economy will recover next year

Mihaly Varga: This year's budget will change, and the economy will recover next year

According to the Ministry of Finance's announcement, Mihaly Varga received Gabor Horvath, Chairman of the Budget Board, in his office, and they reviewed the expected budget operations. It has already been decided not to amend the budget this year and next to the extent that its deficit is less than 3 percent, because that would require cost cuts that would hinder economic growth.

Change this year

This year's budget was planned last spring, then with a target deficit of 2.9 percent. Instead, according to Mihaly Varga, the target value is now 4.5 percent, and next year it will be 3.7 percent, and the value will return to the expected deficit level. Level of 2.9 percent in 2026. It is also possible to achieve the increased deficit target this year without compromising anything but simply the difference in non-current revenues (for example, lower VAT revenues due to lower-than-planned consumption), but the situation is probably more complex than this. Make both expenses and changes on the income side.

The deficit in the first two months of the year was very high, but this is because many of the larger items fell during this period, such as the 13th monthly pension payment, or the huge interest payment on government bonds tracking the inflation rate, as most of them were due at the beginning of the year and had Interest turnover rate. It can be assumed that VAT revenues were also below plan, because according to the data so far, there has not been a significant rise in retail sales yet.

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Growth data

Mihaly Varga also spoke about the expected economic growth, based on the European Commission's forecasts: According to this, a growth of 2.4 percent is expected this year, and 3.6 percent next year, which could be among the highest values ​​in the European Union. . The Minister of Finance stressed that the government is committed to reducing the budget deficit and the level of public debt.

This year, it does not seem easy to achieve both goals at the same time, because if the budget deficit is 4.5 percent of GDP, but GDP growth is only 2.4 percent, the difference will increase public debt in proportion to GDP, because it can Reducing the deficit by increasing fiscal debt only. However, numbers may vary, as factors such as the change in the forint exchange rate or even the inflation rate may play a role when calculating GDP in real terms as well as debt.

Debt can also be magnified

Last year, for example, although the fiscal deficit reached 6.5 percent (nominally 4,600 billion HUF), public debt did not rise, but in fact fell, as very high inflation led to a significant increase in GDP. Calculated. In Hungarian forints, while the current debt remained the same (even the part in foreign currency, since the Hungarian forint did not weaken by 2022): The higher interest that will be paid afterwards weighed on the budget, so its absence appeared: 6.5 percent less than the growth Nominal GDP.

This is essentially the inflation of public debt: only for government securities that tracked inflation did the state pay a value corresponding to inflation, and even above the premium level: much less interest had to be paid for all other parts of the public debt. It is possible to refinance public debt and outstanding debt at a much lower interest rate. Of course, this advantage is dwarfed by the damage caused by inflation. This year, such an effect was much less expected, but cannot be ruled out, as nominal GDP growth will ultimately be higher than the fiscal deficit, so the level of public debt relative to GDP may decline slightly.

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