MNI INTERVIEW2 Hungary Keeps Deficit Plans, Minister Nagy Says
MNI (BUDAPEST) - Hungary will stick to plans to reduce the budget deficit despite an additional “peace budget” for 2025 to stimulate flagging growth, National Economy Minister Marton Nagy told MNI.
Viktor Orban’s government remains “very committed” to meeting this year’s target of a fiscal deficit of 4.5% of GDP, while plans to cut it further in 2025 and 2026, to 3.7% and 2.7% of GDP, respectively, are “realistic,” Nagy said in an interview in Budapest.
“The budget’s primary balance will be zero in these years, while the secondary balance and debt service burden will decrease due to the repricing of inflation-tracking securities,” he said.
Efforts via the “peace budget” to boost growth in part through a combination of wage rises, family subsidies and support for small and medium-sized businesses will strike the “right balance of fiscal prudence and economic stimulus to promote a rebound,” Nagy said.
“Consumption is rebounding and we see a positive trend [in growth], but it’s very granular, despite high real wage growth. GDP growth is projected to be 3 to 5% next year, which puts us in the top five EU member states. So while we might have been too optimistic in the past, the economy is bouncing back, and I would say it is in good shape overall,” he said.
“Another important aspect is the amount of consumption taking place via foreign web shops. Not only does this not increase Hungary’s GDP, we also miss out on collecting a substantial amount of tax revenue. This is something we are closely monitoring.” (See MNI EM POLICY: Inflation Rise, Fed, ECB, Add To NBH Caution)
JULY SURPLUS
July’s budget surplus of HUF213 billion meant August’s HUF 414 billion deficit was “not significant,” Nagy said.
"We’re spreading out some expenditure and public investments, and not exiting from some higher taxations, from one year to another. It therefore makes sense to try to avoid any other restrictive forms of adjustment or changing certain structural features, such as basic taxation.”
Hungary is diversifying its funding, Nagy said, citing recent market-based institutional deals with China and Qatar. Government bonds are increasingly attractive to retail investors, he said, although borrowing costs “need to be decreased.”
A EUR1 billion loan from Chinese banks in July was needed to fund infrastructure development, especially railways, and to transport growing quantities of batteries and vehicles produced by China-owned companies, Nagy said.
“It's very natural that the Chinese state is financing the Hungarian state to have this infrastructure development, because at the end of the day, this is a win-win for the Hungarian economy and the Chinese investors,” he said.
“It’s no different from asking the western world to help finance something that aligns with their investment needs. Our Development Bank, which is under my ministry, also has funding from the Chinese development bank to help improve our electrical and digital infrastructure in particular. I don’t see it as surprising. It’s both natural and rational, especially if the price of the source is favourable.”