The Fiscal Council on Wednesday said it has “no fundamental objections that would justify signalling disagreement” regarding the 2024 draft budget, however, it pointed to a number of risks surrounding the government’s GDP growth and fiscal deficit targets.
The Council noted that the 4.0 percent GDP growth projection was higher than the average of the domestic and international forecasts and relied on the contributions of higher household consumption, a dynamic increase in investment, and export growth that outpaced that of imports.
The growth target can be achieved “if external and domestic conditions develop favourably”, it said, but noted the negative impact of the war in Ukraine and the sanctions imposed in response, energy security problems in Europe and “prolonged” negotiations over Hungary’s European Union funding among risks. Achieving the growth target would also require private sector investment to compensate for the decline in public sector investment, and the increase in exports, supported by the resulting new capacities, would need to be “well over” the pace of growth on export markets.
The Council acknowledged that the 2.9 percent of GDP deficit target is under the Maastricht threshold, but warned that budget revenue could be reduced if GDP growth falls short of 4 percent. It added that some revenue items in the 2023 budget, mainly those related to consumption, were expected to fall short of the targets, negatively affecting the base for the 2024 targets.
The Council pointed to “serious risk” related to targets for material expenditures at budget-funded institutions that are “well under” the rate of inflation in 2022 and expected CPI in 2023 and 2024.
A modest overshoot of expenditures and a little shortfall of revenue could raise the deficit over 3 percent of GDP, the Council said.
It added that a bigger-than-targeted gap between expenditures on EU-funded programmes and transfers from Brussels could weigh on the cash flow-based deficit.
The budget draft targets 3,605.5 billion forints of spending related to EU-funded programmes, paired with EU transfers for those programmes of HUF 2,479.8 billion, the opinion shows.