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Hungary 2010 budget path credible, risks ahead-IMF

Published: 20 Sep 2009 17:49:38 PST

BUDAPEST, Sept 20 - Hungary's government has drawn up a credible path to cut its deficit further to 3.8 percent of GDP in next year's budget, but there are economic and implementation risks ahead, an IMF official said on Sunday.

Hungary became the first European Union member state to seek international aid when the global crisis ravaged its markets, securing a $25.1 billion rescue loan from the International Monetary Fund and the European Union last October.

The IMF's representative in Hungary, Iryna Ivaschenko, told national news agency MTI that the government was committed to its fiscal targets, as a result of which state debt may start falling from 2011 from about 80 percent of GDP today.

She said the IMF was in agreement with the government over its projection for a 6.7 percent decline in the economy in 2009 and a further 0.9 percent next year but added there were economic and implementation risks in the 2010 budget.

She did not elaborate.

The government submitted the 2010 budget to parliament last week including further spending cuts worth 400 billion forints ($2.16 billion) to keep the deficit in check even as the country grapples with its worst economic downturn in almost two decades.

The central bank and the finance minister have also said some reserves may have to be frozen in this year's budget to prevent an overshoot of the 2009 budget deficit target, set at 3.9 percent of GDP.

Hungary is expected to hold general elections next April or May, which the ruling Socialists appear set to lose after painful budget cuts to contain the deficit hurt their popularity.

At a review of Hungary's performance on meeting the terms of its bailout, the IMF and the EU agreed this month to extend the access period to the remaining parts of the loan by six months to October 2010 to cover the transition to a new government.

The main opposition Fidesz party, which is well-positioned to win next year's elections, said on Saturday it would rewrite the 2010 budget if it wins power.