The Finance Ministry and Ecostat (research arm of Hungary’s Central Statistical Office) published their budget forecasts at the same time. Whilst the Finance Ministry holds its cash-flow based budget deficit forecast unchanged at HUF 1 769 bn, with a surplus of HUF 7.88bn in July, Ecostat is less optimistic. In its monthly macroeconomic outlook, Ecostat published its own forecast in which it sees a cash-flow based deficit around HUF 2000bn, which is greater by around 1% of GDP than calculations of Finance Ministry. The budget deficit according to ESA 95 methodology will exceed, according to Ecostat, 10% of GDP (10.2% GDP excluding effect of any correction, FinMin counts with 9.4%) this year.
Our view: Ecostat is not alone in its belief that government fiscal measures will not be as effective as officially stated. The IMF is also sceptical that the tightening will be as big as government claims and, in line with Ecostat, projects an ESA 95 deficit in 2007 at 7% GDP (the government officially insists on 5% in 2007 and 3-3.5% in 2008).
The scepticism behind governmental targets stems mainly from uncertainty around revenues from tax increases, which might be smaller, due to a slow down of the economy but also from experience because failing to hit the budget target is almost becoming a rule in Hungary. The country will exceed its budget target for the fifth consecutive year in 2006.