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Budget 2016 Plans Do Not Comply With Rules On State Debt, Fiscal Council Warns

Tamás Székely 2015.05.11.

The Hungarian government will initiate an amendment to a rule on a nominal state debt threshold to better support economic growth. The Economy Ministry responded to a query by MTI after the Fiscal Council made a recommendation on the rule. Hungary’s Fiscal Council raised no strong objections in an opinion released Friday to the credibility or workability of the 2016 budget draft, but it noted that the draft does not comply with a rule on state debt and recommended amending or scrapping the rule.

Hungary’s year-end state debt as a percentage of GDP, calculated at unchanged exchange rates, would continue to decline next year, as required by law, the Council said. But complying with another legal requirement—in force for the first time with the 2016 budget—limiting the nominal increase in state debt to half of the difference between projected inflation and real GDP growth would require a 700 billion forint correction, it added. Complying with the rule would limit the increase in nominal state debt to just 0.35%, while the budget draft targets a 3.3% increase, the Council explained. It recommended a thorough review of the rule and, if necessary, its modification or elimination.

Complying with the rule on nominal state debt levels in its present form would be damaging for Hungary, the Council’s head, Árpád Kovács, told public television at the weekend. Compliance with the rule would require sacrificing too much economic growth, he added. The Fiscal Council acknowledged that the reduction in state budget debt as a proportion of GDP to 73.3% of GDP at the end of 2016 from 74.3% at the end of 2015 was in line with expected economic and fiscal trends this year and next and was in compliance with provisions in the law on general government. Hungary’s constitution prevents lawmakers from approving any legislation that would raise Hungary’s state debt until the level reaches 50% of GDP. Detailed rules on state debt levels are outlined in the Stability Act.

via hungarymatters.hu, MTI photo: itbusiness.hu