The National Bank of Hungary (NBH) expects Hungary's government deficit according to ESA to be 4.0pc of GDP in 2009 after 3.8pc last year, and 3.8pc to 4.3pc of GDP in 2010, the bank reported in its new inflation report on Wednesday.

The NBH predicted in August that Hungary's government deficit would be 4.1pc of GDP in 2009 and 3.7pc of GDP in 2010.

The International Monetary Fund (IMF) predicts 3,9pc for this year, 3.8pc next year and 2.8pc in 2011. The European Commission sees 4.1pc this year, 4.2pc next year and 3.9pc in 2011.

The NBH report said that Hungary could meet the government- and IMF-targeted 2010 deficit of 3.8pc of GDP if the majority of the untagged reserves amounting to nearly 0.6pc of GDP contained in next year's budget is not spent.

NBH's baseline projection does not include any stability reserve for 2009 as a government decision has already been adopted on its final termination, therefore, the government no longer has any substantial manoeuvring room to compensate for extra spending on the expenditure side, NBH said.

Explaining the deviation of its 2010 forecast from the target set forth in the budget act, NBH said it believed that the secondary effect of the adjustment taking place within local governments, which adds to their deficit, is somewhat stronger than according to the Ministry of Finance. NBH also believes that the reduction of state railways MAV's support is not totally effective. Furthermore, NBH forecast lower personal income tax revenues than the appropriation featured in the budget bill. Finally, NBH believes that the expenditures of the budgetary organisations will be higher than indicated in the bill.

The deficit expected for 2011 may more substantially exceed the target despite the fact that the level of the planned effective reserves is considerably lower than in 2010. For the time being, NBH does not see the conditions for the planned deficit reduction as being in place, and it said that further fiscal balance improving measures will be necessary to attain the envisaged deficit target.

The NBH report published on Wednesday forecasts a current-account deficit of 0.5pc of GDP in 2009 1.5pc of GDP in 2010, compared to 2.9pc of GDP this year and 3.0pc of GDP next year in the bank's August report.

The NBH currently expects Hungary's external-financing capacity to be 1.5pc of GDP in 2009 and 0.1pc of GDP in 2010, compared to 0.9pc of GDP this year and 0.6pc of GDP next year in the bank's August report.

The NBH also confirmed its projections first published on Monday that the annual average consumer price inflation (CPI) should be 4.2pc this year after 6.1pc last year.

NBH expected 4.5pc for this year in its earlier report in August.

NBH now predicts 3.9 pc CPI for next year instead of 4.1pc in the August report, and 1.91pc for 2011 instead of 2.1c in the earlier, August report.

NBH still expects GDP to decline by 6.7pc this year, but its prediction for next year, minus 0.6pc, is better than the minus 0.9pc predicted in the August report. It sees 3.4pc real GDP growth in 2011, the same as in the August report.

The IMF still sees 0.9pc decline of GDP next year after minus 6.7pc this year, and 2.5pc growth in 2011. The European Commission now expects GDP to fall 6.5pc this year, to sink a further 0.5pc next year, and growing by 3.1pc in 2011.