Hungary's fiscal prudence will continue in 2015

Headlines

Hungary’s fiscal prudence will continue in 2015

The Hungarian government will open the 2015 budget proposal today afternoon. Based on the Budgetary Committee’s statement, the budget is planned with 2.4% of GDP deficit target vs. 2.8% of GDP deficit plan in the latest convergence program. The first 9 months budget figures suggests that budget deficit may around 2.5% of GDP in this year, so it means that there is no need for additional fiscal tightening in next year. The budget may planned with 2.2% Y/Y inflation, which looks for us too high as we see average CPI at 1.7% Y/Y for next year. The government’s GDP outlook is 2.5% Y/Y, which is also higher than our 2.1% Y/Y forecast. So the government’s basic macro orbit expectations may create some risk for next year. According to the latest information the safety reserves built into the budget may moderated from HUF100bn in 2014 to HUF40bn in 2015. The public debt is planned to be reduced to 75.4% of GDP at the end of 2015 down from 77.3% of GDP in 2013.

So, we can conclude from the limited information that the government may continue the strict fiscal policy and although it looks like that there may be risks in 2015 budget plan, we think that the government will achieve the deficit target, and the below 3% of GDP deficit is clearly not endangered in 2015 either. Still huge question that how the expenditure side will be restructured, as there is no room for increase the resources in crucial underfinanced areas like education or healthcare without cutting back some expenditure in other areas.

It is also a question that how the government’s support to do reforms may change, as there is opposition within the Fidesz, because of the last days’ news: the introduction of internet tax and the corruption scandal (starting from US).