Hungary cuts 2022 budget deficit target to protect local bond market

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BUDAPEST, Dec.17 (Reuters) – Hungary is reducing its budget deficit target for 2022 to 4.9% of GDP from 5.9% as fiscal policy will be less favorable next year, the finance minister said on Friday Mihaly Varga, after months of huge spending increases.

Just days after the National Bank of Hungary (NBH) ended its massive bond purchase program, and with the tax cuts and big government spending slated for the first quarter ahead of the elections to ‘April, the government is probably trying to ease the pressure on the local government. bond market where yields have increased in recent weeks, according to some analysts.

Varga told a press conference that the economy is expected to grow by around 5% next year after 6.5% this year as she recovers from the pandemic and there was room to start reducing the deficit, which was forecast at 7.5% of GDP this year.

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Prime Minister Viktor Orban’s government, facing a potentially tight election race, has embarked on a spending spree, promising families heavy tax cuts for 2022, raising wages and pensions, and cutting taxes on the employment of 750 billion forints.

However, on Monday, the government unexpectedly postponed a plan to buy Budapest International Airport and froze investments and spending worth 350 billion forints ($ 1 billion), after the government November’s monthly deficit alone exceeded 1,000 billion forints.

In addition, the European Commission withheld EU stimulus funds from Hungary and Poland for rule of law reasons.

“Government announcements to postpone the renationalization of Budapest airport and some additional public investment signal a step towards easing public debt, as Hungary’s access to EU funds remains limited until less after the election, “Citigroup said in a note, adding that politics would remain expansionary early next year.

“According to our estimate, the budget deficit could exceed 3% of annual GDP in the first quarter of 2022, given the priority nature of the announced budgetary measures.”

Varga did not specify what caused the change. He said a rapid economic recovery had reduced the deficit target, which he said “should reduce Hungary’s risks”.

As global central banks begin to withdraw stimulus and the Hungarian central bank raises interest rates to curb spike in inflation and also ends its quantitative easing program, Hungarian bond yields have gone up. leaped. The 10-year yield is now around 4.38%.

According to central bank data, the BNH had increased its bond holdings denominated in forints by more than 1.9 trillion forints in January-October as part of its quantitative easing program. At the same time, commercial banks have reduced their bond holdings in recent months.

Debt agency AKK announced Hungary’s funding plan for 2022 on Friday, in which it plans to swap at least $ 2 billion in foreign exchange bonds expiring in 2023 and 2024 for foreign exchange bonds at more long term in the second half of next year. AKK significantly reduced expected sales of forint-denominated bonds at auctions.

($ 1 = 324.5900 forints)

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Reporting by Krisztina Than; Editing by Giles Elgood and Alison Williams

Our Standards: Thomson Reuters Trust Principles.


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