Hungary Revises Budget Deficit In 2007

Hungary revised the lowest planned budget deficit in 2007, from 6.8 to 6.7 by means of higher taxation income in the first two months.

As part of the convergence plan, which is a condition for entering the Euro zone, Hungary is trying to cut the budget deficit from about 10 percent in 2006 to 3.2 percent in 2009. 

Last year, the government introduced a series of savings measures which entailed, among other things, raising tax rates, raising the prices of energy sources, and a bill on the reform of the administration system, health care, and education. 

State secretary of the Finance Ministry Almos Kovacs said on Tuesday that the Ministry saw no reason to abandon the idea of tying the forint exchange rate to euro in spite of the fact that it was currently growing stronger. To clarify, in recent days, the Hungarian forint exchange rate reached the highest level relative to euro in the last two years, with about 245 forints for a euro. The existing regime demands that the value of the forint relative to euro can oscillate 15 percent in relation to the average value range between 240.01 and 324.71 forints for a euro. 

Even though abolishing this system would, in theory, make it easier to keep inflation in check, the current limited range of the forint exchange rate is not causing any problems, Kovacs pointed out. With this statement, the state secretary dismissed the requests of the former heads of the Hungarian Central Bank, who said that the intended inflation rates would be easier to achieve if the mechanism of tying the forint to euro were abolished. 

In February, the annual inflation rate registered a sudden leap to 8.8 percent as a result of the government's series of savings measures, but the Central Bank pointed out that it was on the right path to rein in inflation to three percent.