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IMF: Hungary´s Fiscal Situation Deteriorates

Published: October 15, 2013; 06:18 · (Vindobona)

According to the IMF, Hungary´s public debt quota will increase. This stands in opposition to the optimistic forecasts of the government.

IMF: Hungary´s Fiscal Situation Deteriorates / Picture: © Flickr

At the end of this year, Hungary will record a debt to GDP ratio of 79.8%, the IMF forecasts. Next year, Hungary´s public debt quota is expected to rise to 80% of GDP. Then, the figure will go down slightly, according to the IMF. In the next years, the fiscal situation in Budapest will remain rather tense. Hungary´s budget deficit is anticipated to come at 3.0% of GDP in 2013 and in 2014.

At the moment, Hungary´s public debt level stands at 79% of GDP. In contrast to the IMF, Hungary´s government anticipates the public debt quota to decrease by 2.8 percentage points to 76.9% of GDP. This forecast is rather unrealistic, economists say. The slight decrease of the public debt level last year was not due to more fiscal discipline, but only because of a recovering forint.

Above all, the real economy suffers from the high indebtedness. Although Hungary´s public debt level is below the EU average, the borrowing costs were significantly above the CESEE. Last year, borrowing costs reached more than 4% of GDP. In Europe, only Greece and Italy have higher interest quotas.

This year, the fiscal shortfall is projected to reach 3.5% of GDP. In 2014, the planned budget deficit comes at 2.9% of GDP, which is only slightly below the allowed budget gap of 3.0%.

Not only Hungary´s public debt forecasts are rather optimistic, but also the growth projections assume favorable economic frame conditions. The conservative government projects an economic growth rate of 2.0%. According to the economists of the IMF, Hungary´s growth rate will only reach about 1.2%.

Due to the unfavorable fiscal frame conditions, the current decline in sovereign bond yields will come to an end soon, economists say. Next year, Hungary´s borrowing costs will range between 6% and 7%, analysts report.