Economy 11 October 2023, 12:08pm

IMF warns Hungary may miss even raised deficit target, 2024 goal risky too

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Hungary's general government deficit could reach 5.5% of gross domestic product this year, overshooting the cabinet's recently raised 5.2% target, according to the latest estimates of the International Monetary Fund (IMF) published on Wednesday. The Fund's Fiscal Monitor also projects that next year's 2.9% target will also be overshot considerably.

The Hungarian government has recently raised its 2023 budget deficit target to 5.2% of GDP from 3.9% previously, but it has left its 2024 goal on hold at 2.9%. The main argument for the upward revision was smaller-than-expected revenues, particularly VAT receipts.

The imf's new estimates show that even the higher 2023 deficit target could be missed, projecting a 5.5% gap for this year, and a 3.8% of GDP shortfall for 2024, against the government's 2.9% official target.

Analysts at OTP Bank have recently updated their estimates, and think that without further adjustment measures this year's gap will widen to 7.3% of GDP and drop to only 4.2% next year if the cabinet fails to address the situation properly.

As you can see on the chart above, the IMF projects the shortfall to drop to 2.8% of GDP only in 2025, projecting the primary balance to improve from 3.9% in 2022 to 2.8% this year and further to 0.7% in 2024.

The Fund has also provided an update on the revenue and expenditure side of the budget. They expect budget revenues to rise to 42.8% of GDP, up from 41.6% last year. In the following years, revenues as a share of GDP could rise further to 44%, before starting to decline again from 2026.

Budget expenditure could rise from 47.8% of GDP last year to 48.2% of GDP this year, and then gradually decline over the next few years to reach 45% in 2028.

Raising the budget deficit target does not jeopardise the downward path of general government gross debt, with the debt-to-GDP ratio expected to return to below 70% this year, after 73.3% at the end of last year, and to maintain the favourable trend in the coming years, approaching the 60% psychological limit in 2027.