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The IMF recently updated its growth forecast for Hungary in the World Economic Outlook, so according to the IMF, Hungarian GDP could fall 6.1% this year and then 3.9% in 2021.
This week an analysis of the Fiscal Monitor of the world fiscal evolution was also published. This year, a Hungarian deficit of 8.3% is expected, which is roughly in line with the government’s expectations of 7-9%. According to the IMF, this is mainly due to an increase in spending, as while budget revenue will fall to 43.8% of GDP from just 44% last year, spending could be 52.1%, 6 percentage points higher than in 2019. Of course, this also means a larger drop in nominal terms than income, since roughly the same proportion of GDP, which is 6 percent lower, is a smaller amount. In the case of expenditures, this effect is the opposite: in addition to a lower GDP, even expenditures that remain unchanged give a greater share.
The graph also shows the positive message: according to the IMF, the increase in the deficit will be only temporary, after the crisis the government will once again take into account fiscal discipline. The psychological limit of 3% is expected not to be met in 2021, but after that, the deficit may gradually decrease further, in 2022 we can approach the 2% value of last year.
Despite the rapid deficit reduction, the jump will leave a big mark on the debt trajectory, the IMF expects the debt-to-GDP ratio to rise to 77.4 percent this year, which may be the highest value since 2013 , which means that we will lose several years of debt reduction. This is not surprising, of course, in the past, the Portfolio has also calculated the debt trajectory in which the possible economic recession and budget deficit could result.
As mentioned, it may be more difficult to reach the debt level of 2019, the IMF says it will only be successful in 2025. After this year’s jump, the debt ratio may be on a downward path, but only in 2023 it may fall below 70 percent.
Cover image: Getty Images
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