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Hungary flags wider current account deficit this year and next

Hungary flags wider current account deficit this year and next

Hungary's government expects its current account deficit to widen to 2.8% of gross domestic product (GDP) this year and a 2.9% deficit in 2022 as it feels the economic effects of the coronavirus crisis and delayed access to European Union funds.
Central bank Governor Gyorgy Matolcsy last week warned of a rise in Hungary's vulnerability since the start of the pandemic, which triggered a fall in output that last year turned the country's current account to a 1.6% GDP deficit.

The central bank, which was forced to ramp up its monetary tightening campaign this month amid a surge in inflation and a fall in the forint to record lows, forecast a 0.4-0.9% current account deficit this year and a tiny surplus in 2022.

However, the government's latest forecasts, published by Finance Minister Mihaly Varga in the online edition of business daily newspaper Vilaggazdasag, project a much worse trajectory.

"These figures are less favourable than the surpluses seen earlier. However, combined with the likely still inflowing EU funding, they can keep our external financing capacity broadly balanced," Varga wrote in the newspaper.

That factor and a fall in net external debt can keep Hungary's external finances on a sustainable path, Varga said in contrast to Matolcsy, who said current trends in the budget, state debt levels and current account were unsustainable.

Prime Minister Viktor Orban's government, facing a closely fought election next year, has showered the electorate with handouts, including a $2 billion income tax rebate for families, which has triggered a surge in the budget deficit.

Orban's government has borrowed heavily in global markets this year to bridge a delay in access to EU pandemic recovery fund over a row with Brussels on democratic standards.

Varga said foreign tourism would still not fully recover next year, while output in the autos sector, a mainstay of Hungary's growth, would be around 80% to 90% of the levels seen before the pandemic due to the global chip shortage.

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