Budapest, January 2 (MTI) – Hungary’s economy is becoming more and more sure-footed now that the government has created the conditions for balance and growth, Economy Minister Mihaly Varga told MTI in an interview.
Varga said he does not expect Hungary will miss its budget deficit target. The biggest challenge will be drawing down European Union funding, he added.
Among the most significant achievements, he noted the reduction of the public debt, the turnaround in growth, the expansion of employment and the emergence from the EU’s excessive deficit procedure and paying off Hungary’s International Monetary Fund loan.
“All these results, more than anything, are signals of security, which we have attained through stabilising the state finances; and this proves that Hungary can finance its expenditure self-sufficiently,” he said in the interview given in late 2013. “Last but not least, it is capable of pursuing a new, independent and successful economic policy.” “With all this, among other things, we have ensured that we are receiving all the funding from Brussels that is due to us,” he added. The expansion of the production branches is the foundation for the turnaround in growth and forms the basis for the government’s expectations, he said. Taking into consideration positive trends, the “not at all biased European Commission” and international analysts have all improved their Hungarian growth forecasts.
In the interview, Varga said “this year’s budget stability is guaranteed”. “At the time of preparing the budget we strove to simultaneously create financial stability while substantially reducing the burdens of households and families,” he said. “Both objectives have been fully realised.” The 16 percent flat income tax system and the family and child support schemes have left altogether 500 billion forints (EUR 1.7bn) with families each year since 2011, he said.
He said it was undoubtedly the case that in order to meet the goal of delivering a budget deficit of below 3 percent of gross domestic product — this being the opinion of the Fiscal Council — revenue targets would have to be met. Varga said that given the prevailing economic data there is a good chance that, in spite of low inflation, tax receipts would not shrink. “The reductions to household utility bills have indeed moderated inflation, but low prices are not due to this first and foremost but to the strength of the economy, the success of fiscal and monetary policy and to the stable forint exchange rate,” he said. Moderate inflation creates a more predictable economic environment, which, in the long term, has a positive effect on tax receipts, he added. “On the basis of data which is better than expected, we do not expect to exceed the budget deficit target,” Varga said.
Varga said the necessary funds to cover the integration of savings cooperatives were in place, adding that neither the planned integration nor the government’s purchase of E.ON’s gas business in 2013 would compromise Hungary’s ability to meet its deficit target. On the subject of the National Bank’s easing cycle, Varga said this had had a positive impact on investments and domestic consumption through lower interest rates on forint-based market loans. “Fresh data indicate dynamic development in a wide range of areas in the national economy during the past few months,” Varga said, adding that a lower base rate helps to reduce bond yields, which makes financing Hungary’s state debt cheaper.
Varga said that the central bank’s credit for growth programme had a favourable impact on economic growth, especially in agriculture, manufacturing and commerce. He said he trusted that the scheme, entering its second phase, would exert an even more marked positive effect in the next few months.
The minister made special mention of Hungary’s increased employment, which has reached a 21-year high. He said that 235,000 more people were working now than in spring 2010, and insisted that 100,000 of the new positions were in the private sector. He said Hungary’s unemployment rate was now below the 10 percent European Union average and that real wages had increased 7 percent since 2010, as a result of low inflation and family benefits.
In the coming years, Hungary will need to concentrate on tapping as much EU funding as possible, Varga said, adding that the government’s negotiations in Brussels had helped manoeuvre the country to a position in which it could be “one of the greatest beneficiaries of the 2014-2020 EU budget”. He said Hungary was second among all EU members in terms of community funds per capita, and added that the country must use that potential to the benefit of the nation.