Bloomberg News

Hungary to Rework 2012 Budget as Orban Cuts Growth Forecast

December 12, 2011

(Updates with Orban speech in third paragraph, economist comment in seventh.)

Dec. 12 (Bloomberg) -- Prime Minister Viktor Orban pledged to rework Hungary’s 2012 draft budget because of a reduced economic-growth forecast and a weaker forint estimate.

The Cabinet forecasts economic expansion of 0.5 percent “at most,” compared with 1.5 percent predicted earlier, because of lower export demand from the euro area, Orban told M1 television in an interview broadcast yesterday. The government needs additional measures to plug a 200 billion-forint ($883 million) gap for 2012, Economy Ministry State Secretary Zoltan Csefalvay told TV2 in an interview today.

“Next year, particularly its first half, will be turbulent for Europe and it will certainly be turbulent for us as well,” Orban told lawmakers in Parliament today. “We have to cut the growth forecast” and “we have to calculate with a higher euro- forint exchange rate than we previously hoped.”

Hungary last month lost its investment-grade credit rating at Moody’s Investors Service after seeking assistance from the International Monetary Fund and the European Union. The Cabinet reversed its policy of shunning international aid after the forint fell to its weakest on record against the euro and the government struggled to raise planned amounts at debt auctions.

The forint has been the world’s worst-performing currency against the euro in the second half, weakening 13 percent. It dropped 1 percent to 305.25 per euro at 3:02 p.m. in Budapest after reaching a record-low 317.92 on Nov. 14.

Additional Measures

The Cabinet previously based next year’s draft budget on an average forint rate of 268 per euro, targeting a budget deficit of 2.5 percent of gross domestic product.

“Orban’s statement suggests the government acknowledged that 2012 growth might be considerably less than the 1.5 percent projection the budget was originally built on, rendering the budget-deficit target unlikely to be met without additional measures,” Antal Hum, a Budapest-based economist at DZ Bank AG, said in an e-mail today.

Hungary needs to raise additional revenue, cut spending further and tap budget reserves set aside for 2012 based on its new forecast, Csefalvay told TV2 today. The government faces an additional 200 billion-forint shortfall for 2012, based on estimated growth of 0.5 percent and an exchange rate of 300 forint per euro, Csefalvay said in the interview.

The projection for “growth must be cut to, at most, 0.5 percent but that’s the upper limit,” Orban said in his television interview. “It may be lower.”

IMF, EU

The country also needs an IMF safety net to be able to weather the impact of the euro area’s crisis, Orban told lawmakers today. Development Minister Tamas Fellegi, who asked to resign said on Dec. 8, will be take a new position of minister without portfolio to concentrate lead talks with the Washington-based lender and the EU, the premier said.

Hungary won’t rush to sign the fiscal accord agreed to by euro area leaders last week in Brussels as the agreement effects the country’s sovereignty, Orban said.

Hungary needs to see the full text of the EU accord, for which European leaders set a March deadline, before making a decision because it remains unclear what obligations the countries aspiring to join the euro area will face according to the new rules, Orban said.

--Editors: Balazs Penz, Alan Crosby

To contact the reporters on this story: Andras Gergely in Budapest at agergely@bloomberg.net; Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editors responsible for this story: Gavin Serkin at gserkin@bloomberg.net; Balazs Penz at bpenz@bloomberg.net


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