Hungary must make more efforts to slash its public deficit under EU limits by next year, the EU’s executive arm said on Saturday after a mission on financial aid to Budapest.
The European Commission said it decided to postpone conclusions of its latest financial aid review mission to Hungary to give the government more time to clarify its budgetary plans.
“Hungary has returned to a positive economic growth path and now has one of the lowest budget deficits in the EU. I welcome the authorities’ commitment to the 2010 deficit target,” EU Economic Affairs Commissioner Olli Rehn said.
“However, the correction of the excessive deficit by next year will require tough decisions, notably on spending. Care will also be needed to ensure a stable environment for both domestic and international investors,” he said.
Hungary has vowed to slash its deficit to 3.8 percent of GDP this year as part of a 20 billion euro (US$25 billion) financial lifeline it agreed with the IMF, World Bank and EU in late 2008.
In February, the previous government had said that Hungary would not draw on the complete amount of the bailout, arguing improved economic situation allowed the government to drum up financing on the markets itself.
But the new conservative government said last month that it wants to negotiate an extension of the deal, which expires in October, until December and reach a new agreement for next year.
Hungarian Prime Minister Viktor Orban unveiled a package of austerity measures last month, including efficiency savings worth up to 120 billion forint (US$550 million) and an annual 200 billion forint tax on banks.
The European Commission said the corrective measures considered so far are “largely of a temporary nature” and “fall somewhat short” of what is required.
“Hence, the government has to make increased efforts to bring the deficit below 3 percent of GDP, on a sustainable basis, in 2011,” the commission said following a mission to Hungary by IMF officials earlier this month.
The EU executive body said a planned levy on the financial sector would help in the short term, but it warned that it could also have “a significantly negative impact on the country’s investment climate and economic growth.”
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