Hungarian parliament passes 2010 budget

(BUDAPEST) - Hungary's parliament on Monday approved the country's 2010 austerity budget, targeting a public deficit of 3.8 percent of gross domestic product (GDP), one of the lowest in the European Union.

Inflation was meanwhile expected to average 3.9 percent, down from 4.2 percent in 2009.

The budget includes severe cuts in ministry spending, public transport and municipalities.

It projects 2010 revenues at 12.6 trillion forints (45.8 billion euros, 67.6 billion dollars) and spending at 13.5 trillion forints, leaving a deficit of 870.3 billion forints, or 3.8 percent of GDP.

The government based its figures on an expected 0.6-percent contraction of the economy in 2010 after shrinking by an expected 6.7 percent in 2009.

"This budget ensures stability in Hungary," Prime Minister Gordon Bajnai told the press after the vote.

"From 2011, economic growth can accelerate to 3.5-4.0 percent," he added.

Bajnai was to keep the 2010 budget on an austerity track to meet the terms of a 20-billion-euro International Monetary Fund-led (IMF) bail-out for the country.

Budapest turned to the IMF, the European Union (EU) and the World Bank for help last October when its resources dried up as foreign investors fled Hungarian markets and the country came close to bankruptcy.

With this budget, which cuts state spending by another 1.6 percent of GDP after it was already slashed by 3.8 percent this year, Hungary will not need to draw on the upcoming installment of the international loan, Finance Minister Peter Oszko said.

"We managed to prove that Hungary is able to finance itself on the market and as we see, we are not going to need the next slice of the loan in spring," Oszko said.

He added that a much larger buffer was integrated into the budget than in 2009, with reserves hiked to 206 billion forint from 30 billion this year.

Analysts as well as Hungary's central bank and the EU anticipate the deficit to widen due to items not included in government calculations.

"Such additional expenses will be the consolidation of state railway MAV, Budapest city transport company BKV, the capitalisation of local municipalities and the restructuring of Hungary's ailing health care system," David Nemeth, an analyst of Dutch-owned ING Bank, told AFP.

While Nemeth projected the budget shortfall to rise to between four and five percent, Adam Keszeg, an analyst at the local branch of Austria's Raiffeisen bank, expected a "markedly higher" gap than the government forecast.

The European Commission forecast at the beginning of November that Hungary's deficit would broaden to 4.2 percent of GDP in 2010.

Hungary's conservative opposition party Fidesz, which is likely to win general elections in the spring, warned that the deficit might even surge higher than seven percent.

It vowed to amend the budget once in power.

"New governments tend to consolidate big items right at the beginning of their term to be able to point a finger backwards," commented Gyorgy Barta, analyst at CIB Bank, the Hungarian branch of the Italian Intesa Sanpaolo group.

"But a shortfall bloated to that extent would not be tolerated by Hungary's international lenders," he added, predicting a 2010 public deficit of 4.4 percent of GDP.