July 5th, 2012

National Bank says HUF 300 billion jobs plan could hit 2013 budget

Hungary could reach a 2.4pc of GDP ESA95 general government deficit in 2013 if all reserves remain unspent, but the 2013 budget bill contains no buffer to cover additional spending, the National Bank of Hungary (NBH) said in an analysis of the bill on Thursday.

The NBH said it was too early to assess the impact of the employment-boosting measures announced on Monday, but warned that the plans, as announced to date, could increase the 2013 deficit. The current version of the financial transaction duty, if passed by Parliament, could also raise the gap.

The NBH said it analysed the bill as it was submitted on June 15, and did not take into account a HUF 300bn job-saving and employment-boosting action plan, announced by the Prime Minister on Monday. They noted, however, that it saw no reserves in the budget which could cover additional expenditure.

Excluding the additional spending plans, the bank’s forecast for the 2013 general government deficit ratio is 2.8pc, if all untied reserves in the budget bill are used up, and 2.8pc if they remain unspent.

This implies that they see the need for some small-scale additional deficit-cutting measures to meet the government’s deficit target of 2.2pc of GDP in 2013.

The NBH projects a 0.6 percentage-point higher deficit than the government, using the assumption that all the reserves in the budget will be spent. Two-thirds of the gap is the result of the NBH’s more pessimistic macro-economic forecast and one third came from a different assessment of the measures.

The NBH analysis showed primary government revenue would be less by 0.6 percentage points of GDP than projected by the government, interest expenditure to be 0.1pc-of-GDP less (assuming that an agreement with the IMF/EU on financial assistance would knock down yields) and primary expenditure 0.1 percentage points of GDP more than calculated in the budget bill.

The NBH notes that several of the measures or revenues assumed to generate revenue or savings in the 2013 budget bill are yet to be approved by Parliament. The same problem means weakens the NBH’s own forecast, they noted.

Beside the legislative uncertainties, some measures carry implementation risks.

The NBH analysts calculated with the HUF 283bn revenue target from the financial transaction duty as a technical assumption when calculating budget revenue. They noted, however, that net revenue from the duty could be less if a recently proposed amendment (to put a cap on the duty while extending it without a cap to the NBH and to the State Treasury) was passed in its present form.

A further upward risk is that the IMF/EU agreement could fail to materialise.

Risks are significantly increased by the fact that the free reserves set aside in the budget bill will likely be finally frozen to offset a revenue shortfall caused by slower than projected economic growth.

The NBH forecast state debt to fall in 2013 thus the bill meets the rule for declining state debt set in Hungary’s Constitution approved last year.


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