Hungary central bank says credible fiscal planning needed to cut risks

BUDAPEST (Reuters) – Hungary’s central bank expects the 2024 budget deficit to be between 4.5% to 5% of gross domestic product, possibly exceeding the government’s recently increased 4.5% target, it said in its quarterly inflation report on Thursday.

Prime Minister Viktor Orban’s government has struggled to contain the budget deficit since the COVID-19 pandemic, with the shortfall averaging nearly 7% of economic output over the past four years.

Earlier this month Orban abandoned a plan to cut the shortfall below 3% of economic output this year, which was widely considered to be unrealistic amid a slower-than-expected rebound from last year’s recession.

“For the debt ratio to decline continuously in 2024 and Hungary’s risk perception to improve, it is also necessary to achieve the set deficit targets in a credible manner,” the National Bank of Hungary said in a statement

“The high inflationary environment over the past two years has led to a significant increase in government interest expenditure, which will continue to be a heavy burden on the budget this year as well.”

It said the shortfall could exceed the European Union’s 3% of GDP threshold even in 2026, when the nationalist Orban will face a parliamentary election.

(Reporting by Gergely Szakacs, Alan Charlish and PaweĊ‚ Florkiewicz; editing by Mark Heinrich)

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