Hungary Finance Minister Warns Against Overspending Amid High Inflation

Summary

  • Finance Minister Mihaly Varga has highlighted a policy disagreement within Prime Minister Viktor Orban’s administration, with repeated calls from the economy minister for relaxed fiscal regulations and a higher inflation goal to help the economy exit the recession.
  • Despite high levels of inflation in the past, Hungary managed to decrease it to an annual rate of 5.5% this past December.
  • Minister Varga reiterated that Hungary predicts a 5.2% price increase in 2024 and warns of the associated risks.
  • The escalating inflation rates caused an economic recession which led the government to lower its 2024 growth projection to 3.6%.
  • Varga cautioned against lavish government spending and stressed the importance of maintaining a low budget deficit and reducing government debt to achieve sustainable growth.

Finance Minister Varga’s insights

Mihaly Varga, Hungary’s Finance Minister, has emphasized on the ongoing rift within Prime Minister Viktor Orban’s government. The Economy Minister had persistently asked for relaxed fiscal norms and a higher inflation goal to stimulate the economy, leading the country from recession.

Hungary’s Inflation status

One year ago, Hungary experienced the highest inflation level in the European Union at 25% per annum. However, this eased to an annual rate of 5.5% in December, as revealed by recent data. Varga underlined the government’s prediction of a price increase by 5.2% in 2024 in Hungary.

Dangers of high inflation

Varga voiced his concern over the high inflation level which is not yet at a comfortable point and carries potential risks, in his interview with economic daily Vilaggazdasag. A global economic imbalance or fluctuation could cause significant discomfort by pushing Hungarian inflation rate even higher.

Implications of Inflation surge

While the inflation rise led to a recession in the economy, it forced Orban’s government to decrease their 2024 growth projection to 3.6%. Amid this, Varga also issued a warning against government extravagance, advocating for a low budget deficit, and further reduction of government debts to ensure sustainable development.

Government spending and deficit in Hungary

Varga underscored fiscal caution, stating the government should refrain from exceeding its fiscal limit in terms of economic stimulus. He added, without balance, economic growth could be imaginary. This implies the state should only back investments with promising higher return than the invested amount.

Hungary’s budget condition post COVID-19

Post the COVID-19 pandemic, Hungary’s budget deficit averaged nearly 7% of its gross domestic product over the past four years. To trim this deficit to its target of 2.9% of GDP, Orban’s government will need to slash it by more than half this year.

The financial status of Hungary can impact forex trading and the future investment prospects in the country.

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