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The Budget Board sees significant risks for the Hungarian economy in the next three years

The Budget Board sees significant risks for the Hungarian economy in the next three years

For the first time, the Budget Board has issued three-year medium-term forecasts on macroeconomic and budgetary operations, and there are many notable concerns about the state of the budget.

the document – Arpad Kovacs, who is now stepping down as President of the Council, and László Fendsch, who heads the State Audit Office I acceptedthe signature of Central Bank Governor Giorgi Matolcsi, who is also a member, is not on the approval – it is calculated with more unfavorable figures than those presented by the government to the EU In the convergence program are included.

According to the Council, the “assumed” growth of 4 percent in 2024 in the convergence program will only be possible under very favorable conditions, and a GDP expansion of about 3 percent is considered more realistic.

By 2025, they are already more optimistic, and according to them, economic growth next year could again reach the average of the years before the coronavirus, so it could reach 3.5-4.5 percent in 2025, and 3.0- 4.0 percent in 2026. “This is a somewhat more moderate forecast compared to the 4.3 and 4.5 percent growth assumed by the convergence programme, which is justified by internal demand elements. If the higher internal demand path is achieved, this could cause the external trade balance to deteriorate “If it does not lead to increased competitiveness and export capacity.”

In order to achieve sustainable GDP growth exceeding 4 percent, according to the Council, in addition to restoring balances, it also urges comprehensive competitiveness reforms that “facilitate the transition to an intensive economic model based on productivity.” The most important economic factors in the past decade can only be increased in quantity, so their quality must be improved to continue to catch up.

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Achieving the national debt base this year, i.e. further reducing the national debt in proportion to GDP, is subtly called new challenges. That is, “the average interest rate on the national debt will rise in 2024, and then remain at a high level in 2025 and 2026.” A few numbers: In 2020, interest expenditures in the government sector accounted for 2.3% of GDP. According to the convergence program, this percentage will rise to 4.1 percent by 2024, and will decrease to only 3.4 percent by 2026.

According to the Council, a primary surplus of 1.2 percent of GDP is needed to achieve the deficit target of 2.9 percent of GDP planned for 2024, and a primary surplus of 2 percent of GDP is needed to achieve the deficit target of 1.4 percent planned for 2024. 2026.

They also write that “the public debt rule is achieved only if the size of GDP grows faster than the extent to which public debt rises as a result of government sector deficits and the revaluation of foreign currency debt. Thus, significant growth in real GDP and/or a significant reduction in “The relative GDP deficit of the government sector is necessary to meet the national debt base. The convergence program objectives meet this requirement, so the risk lies in achieving them.”

Turning to reducing budget expenditures, it begins with the convergence program. According to the convergence program, the centralization rate will decrease from the 42.6 percent planned for 2023 to 38.4 percent by 2026, which requires, taking into account the goal of reducing the deficit, that government sector expenditures as a proportion of GDP be from 46.5 percent. Planned 2023 should be reduced to 39.8 percent by 2026, that is, within 3 years, expenditures should be reduced by 6.7 percent of GDP.

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At the same time, they see a great danger in this matter, namely whether it is possible to reduce expenditures to this extent in three years without compromising the provision of state jobs at the appropriate level.

The summary concludes: “The larger-than-planned government sector deficit – as well as some one-time expenditure items – is primarily due to revenue shortfalls and a higher-than-expected increase in interest expenditures. In the case of tax revenues, this means that the tax revenue base For 2024 they have also decreased, that is, the shortfall in 2023 may have a moderate impact on the following years’ revenues, which poses a particularly high risk to achieving the target. Budget targets for 2024 and planned for subsequent years from this point of view.”

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