Important announcement from the Economy Minister on policy reforms prepared for 2015

HUNGARY - In Brief 23 Sep 2014 by Istvan Racz

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Fact: Earlier today, Economy Minister Varga spoke at a conference in Budapest. He made an important announcement on upcoming fiscal and other policy reports, which he expected to be part of the 2015 budget. This statement made the forint strengthen moderately in early trade, to EURHUF 310-311, but is potentially much more important than short-term market reactions. What Mr. Varga said can be summarised as follows: - A rather tight budget will be put forward by the government (by end-October, according to a legal deadline), with the double aim of keeping the government debt ratio on a decreasing trend, and to reduce the expenditure to GDP ratio, in order to raise the overall competitiveness of the economy; - The fiscal deficit will be kept below 3%, and spending cuts will be as big as to result in savings for the private sector as well (a somewhat complicated way to indicate a wish to deliver some selective tax cuts). Hungary's government expenditure ratio is just too high compared to its regional peers; - There will be measures to boost potential growth. Recent GDP growth figures were spectacular, but in order to reduce the debt ratio, there is need for satisfactory (= higher than current potential) growth on a sustainable basis; - The government sees the need for a higher fixed investment ratio, with investment both from external and internal sources. As part of efforts, EU transfers under the 2014-2020 EU budget will be directed more towards direct productive investments than towards general infrastructural and social projects; - The government sees the need for measures to pass big numbers of people currently in social employment programs to jobs generated on the la...