In a speech made at a conference organised by the State Audit Office today, the Governor of the Magyar Nemzeti Bank, András Simor, presented the results of an analysis of the medium-term financial position of general government conducted by Bank staff. In the technical projection assuming unchanged fiscal policy, Hungary’s debt-to-GDP ratio falls to 59.4 per cent by 2026. This means that the country’s debt will meet the 60 per cent reference value in the Maastricht Treaty; however, it will still exceed the 50 per cent debt target set by the Constitution. Meeting the Constitutional target for general government debt will require either higher sustained levels of growth, or Government actions aimed at strengthening investor confidence and reducing the cost of financing debt, or further improvements in the fiscal balance.

The Governor said that in the projection the general government primary balance shows a trend improvement and stabilises around 2 per cent of GDP in the long term. The projection is based on a long-term growth rate of 2.5 per cent, which the cost of debt servicing exceeds by 0.8 per cent. Nevertheless, the primary balance will be sufficient to  offsetthe debt augmenting effect of debt servicing, i.e. it will ensure that the debt ratio declines.

The English summary of the ‘Medium-term projections for the fiscal balance and general government debt (2012 – 2026)’ publication could be downloaded from here. The full English version will be available soon.

Notes to the Editor:The Bank’s analysis is a so-called technical projection rather than a forecast. This means that it shows the expected paths of the deficit and debt based on the assumption of unchanged economic and other policies rather than the most likely outcomes. In view of the long time horizon, the uncertainties related to the macroeconomic and fiscal paths add up and accumulate. The effects of the second Structural Reform Programme are not reflected in the macroeconomic path however, its effect on the fiscal balance have been taken into account in producing the projection.