The IMF projects Hungary’s budget deficit at 3.0% of GDP this year and at 3.4% in 2013. These figures largely chime together with the European Commission’s estimates.
This means Brussels and Washington both see a risk that Hungary will miss its target to bring its shortfall to below 3.0% of GDP this year and deem that in 2013 additional fiscal adjustment measures will be needed to reduce the gap to below the EU ceiling. Without success in this regard Hungary cannot expect the Excessive Deficit Procedure to be lifted. Additionally, the government’s official target for 2013 is a 2.2% of GDP deficit, and the prognoses are rather far from that level. Although a 3.4% gap would not be a shame in European terms, as you can see on the chart below, the country does not score overly high with this in the IMF’s emerging economies ranking.
The good news is that the IMF believes Hungary’s debt can be set on a declining path. The Fund projects the country's debt-to-GDP ratio to drop from 80.4% in 2011 to 76.3% this year, 76.0% in 2013, 75.4% in 2014, 74.3% in 2015, 73.1% in 2016 and 71.9% in 2017. They have come to this conclusion because they calculate with surplus in the primary balance and relatively low real interest rate. This may seem to be contradicting the above statement but it is still true: although the real interest rate level is high enough for the (r - g) difference to be positive, but it is not large enough to completely neutralise the debt-reducing impact of the primary surplus.
The cyclically-adjusted balance can also give a good indication on the real state of the structural situation of the budget. The chart below clearly shows what the transfer of private pension fund assets to state coffers concealed last year: the situation of Hungary’s budget deteriorated considerably in 2011. We haven’t seen such a dreadful figure practically since the appalling election-related profligacy in 2006. The good news is that the IMF expects Hungary to return close to the emerging market average this year, i.e. where the country was in 2009-2010, thanks to a massive fiscal adjustment.