Geopolemics.com :: Hungary

Countries: Hungary
Posted on Friday, November 30, 2007 - 12:32 PM
	At the brink Hungary is in a ghastly hole. It began to run a huge public deficit, nearly 10%of GDP. The ex-communists who ran the show kept making promises that they could not keep. The government is nearing the end of its period of severe fiscal austerity, but the structural reforms will continue and a budget deficit of less than 3% of gross domestic product is within reach in the coming years, Prime Minister Gyurcsany said on November 15. "The period of austerity measures seen in the past 1.5 years is over but this doesn't mean that the reforms are done. Now a period of improvement and construction is to come," Gyurcsany said at a conference organized by domestic think tank GKI. The ongoing painful reforms of Hungary's healthcare, education, and public sectors are not only aimed at bringing the budget back to a sustainable course but also at putting an end to stop-go fiscal cycles, and at convincing Hungarians that no more can be spent on social services than is received in the budget. "In a small and open economy such as Hungary's, we need to aim to have a budget that has not a 3% deficit but which is totally balanced (with no deficit)," Gyurcsany said. Hungary recorded the biggest budget deficit as a percentage of gross domestic products in the European Union last year, at 9.2%. The austerity measures carried out this year and last year amounted to 7.5% of GDP, one of the biggest spending cuts ever by a European country, Gyurcsany said. "A stable, less than 3% (of GDP) budget deficit could come during the current (political) period," Gyurcsany said meaning the current Socialist party-led government cycle. Concerns from analysts and investors that Hungary will fail to meet its budget deficit reduction goals in the coming years, including 2010, are "unfounded," Gyurcsany said. The bill on new budget planning rules submitted to parliament will serve as an institutional guarantee for reaching those targets, he added. As a result of the fiscal spending cuts, Hungary's GDP growth has slowed sharply and analysts fear that the country is facing stagflation. "The question is, then, where economic growth will come from? We need to reject all ideas that suggest that growth should come from boosting domestic consumption and boosting domestic investment demand," Gyurcsany said. "This was one of the gravest mistakes in the past years and there's no road back to that," he added. Gyurcsany's Socialist party and the leading opposition party, the center right Fidesz party's views strongly differ regarding that, Gyurcsany added. With the budget lowering its financing need, the private sector will gain room to invest and develop, the premier said. Furthermore, development programs drafted by the government will add to that, he added. Note: To read more, click here

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