Hongaars begrotingstekort moet in 2009 gecorrigeerd zijn onder het nieuwe Convergentieprogramma; rigoureuze implementatie is de sleutel tot het behalen van de doelstellingen (en)

The new budgetary projections contained in the revised Hungarian Convergence Programme until 2009 set an appropriate path for the correction of the deficit, but implementation will be key in ensuring its success. The programme foresees a reduction of the budget deficit from an expected 10.1% of GDP this year to 3.2% of GDP in 2009. The programme also foresees public debt of 70.4% of GDP in 2009, putting an end to the steep increase that has been seen in the last few years. Given the size of the deficit, the Commission proposes that the Council extends the deadline for its correction to 2009, from 2008, in a new recommendation under Article 104.7 of the Treaty, and that the Government takes all the necessary measures to meet this new deadline and ensure a permanent correction within a comprehensive reform strategy.

" After repeatedly warning about large budgetary slippages, the Commission takes note of the commitment by the Hungarian Government to bring its public finances back on a sound footing. This is absolutely paramount to put Hungary's economy on a path of sustained growth and wealth creation. We welcome the fact that some concrete measures and steps have already been adopted, but substantial risks and challenges remain. We will continue to closely monitor the situation to verify that the announced measures are fully implemented and that the Government decisively carries out its agenda for structural reform and expenditure control ", said Joaquín Almunia i, Commissioner for Economic and Monetary Affairs.

Adjusted convergence programme update

On the 1st of September the Hungarian government submitted a new Convergence Programme after the Commission concluded that the figures given in the previous update examined in January were not realistic in the absence of concrete and structural consolidation measures.

The adjusted programme, which is based on a broadly plausible macroeconomic scenario, aims to bring the deficit down from 10.1% of GDP in 2006 to 3.2% of GDP by 2009 (both figures include the budgetary cost of the pension reform). The overshoot of the previous 2006 target is explained by increased spending, including in the areas of health care, pensions and public wages, the correction of the classification of motorway construction (1.1% of GDP), military aircraft purchases, revenue shortfalls and, of course, the costs of the pension reforms.

The bulk of the adjustment - over 6 percentage points - is to be achieved in 2007 and 2008. The debt-to-GDP ratio is expected to continue to rise to 72.3% in 2008, well above the 60% reference value, and only start decreasing in 2009.

The situation of the Hungarian public finances has been a matter of serious concern since Hungary joined the EU in 2004, but it has worsened this year. Some important measures have already been taken to secure additional revenues and cut expenditures with a view to reaching the deficit target of 6.8% in 2007. But there remain risks in both the short term and the outer years of the programme, making it essential for Hungary to detail and rigorously implement the envisaged structural reforms and to strengthen and enforce the expenditure controls and rules without any further delay.

The long-term sustainability of Hungarian public finances is at high risk on account of the very high deficit and debt level as well as the expected increase in the pensions and other age-related costs. This makes it all the more important to reduce the deficit rapidly and to reverse the increase in the debt.

Excessive deficit procedure

In view of the new adjustment path defined by the Hungarian government, the Commission today also recommends to the European Union finance ministers to set the new deadline for correcting the excessive deficit at 2009. In its previous Article 104.7 recommendation of July 2004, the Council had set a deadline of 2008.

The Commission specifically recommends that Hungary implements rigorously the necessary measures to ensure a sustained and substantial correction of the structural deficit, in line with the path foreseen in the programme. Furthermore, the government debt ratio must be brought on a firm downward path as soon as possible and preferably before 2009. The budgetary adjustment also needs to be set within a comprehensive structural reform strategy and supported by an improvement in budgetary controls. The Government has undertaken in the adjusted programme to report twice a year on the implementation of this strategy and the fiscal targets.

Background

This is the third recommendation proposed by the Commission under Art 104.7 to correct Hungary's budget deficit. In the autumn 2005, the Commission and the Council concluded for the second time that the Hungarian government not only had failed to take the necessary action to reduce the deficit, but that the situation was worsening. The first time was January 2005.

In 2005, the Hungarian deficit was 7.5% (also including the pension reform costs), making it already the highest deficit in the EU. The debt-to-GDP ratio was at 62.3% of GDP.

The text of the Commission's assessment can be found at:

http://europa.eu.int/comm/economy_finance/about/activities/sgp/procedures_en.htm

[ Figures and graphics available in PDF and WORD PROCESSED ]