Hungary’s economy is solid, deficit target on track, Varga says

Hungary’s economy is solid, comparisons with default countries are exaggerated and the planned budget deficit will be met, Mihaly Varga, the senior Fidesz government official in charge of a budgetary fact-finding committee, told a news conference on Saturday.

Asked whether Hungary was facing bankruptcy, Varga said that the situation was consolidated and that the planned budget deficit of 3.8 percent of gross domestic product could be met, but in order to do so the government would have to act.

He said comparing Hungary to a country with a higher risk premium was exaggerated “and if a colleague said such things, then it is unfortunate.”

Analysts said Varga’s announcement could calm markets and prevent the forint from further weakening.

On Friday the prime minister’s spokesman Peter Szijjarto said that Hungary’s chances of escaping a similar fate to Greece were slim, sparking renewed worries about Hungary.

The euro hit a four-year low on Friday and the cost of insuring Hungarian government debt sky-rocketed.

Varga commented on the conclusions of a fact-finding committee whose job was to explore the true state of the budget. Fidesz insists that the budget drawn up by the crisis-management government of Gordon Bajnai hid the true extent of the deficit.

The state secretary said there were numerous serious falsehoods and tricks contained in the budget and for that reason immediate action must be taken.

Varga said that several items including tax receipts, expenditures by budgetary organisations, duties related to companies such as excise tax among others had been based on false assumptions.

He added that financial data of companies on the state balance sheet such as Budapest transport company BKV, state railway MAV and national flag-carrier Malev were false and other expenditures on local governments and state assets had been wrongly accounted.

Further, the state-run Hungarian Development Bank and Hitelgarancia had losses of several hundreds of billions of forints which had not been included in the budget calculations, he said.

Former Finance Minister Peter Oszko rejected Varga’s remarks and said that the previous government had been open about risks and had elaborated the methods of tackling them. He added that the current budget reserves were sufficient for the purpose.

EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in the South Korean port city of Busan on Saturday that talk of Hungary defaulting on its debt was mistaken and the economy was on the way to recovery.

The way the Fidesz government has conducted the communication of its plans for Hungary’s economy and finances has put the country at risk and lost it credibility, opposition Socialist party leader Ildiko Lendvai said.

Socialist parliamentary leader Attila Mesterhazy said on Saturday that the ruling Fidesz party’s recent exaggerations about the state of Hungary’s finances were a ruse to prepare public opinion for new austerity measures.

Mesterhazy slammed the government for insisting that the state of the finances was much worse than it actually is and for blaming the former governments of Ferenc Gyurcsany and Gordon Bajnai for the current state of the economy.

The Fidesz government could be making attempts to adjust its promises – such as large-scale tax cuts – made during the election campaign with post-election realities, according to an analysis by the London-based Eurasia Group published on Saturday.

Market developments in the second half of the week have made it clear that neither the markets, nor the European Union, nor the International Monetary Fund will tolerate it if Hungary abandons the policy of austerity, Eurasia said.

The government started an extraordinary three-day session on Saturday seeking to formulate an economic action plan.