Governor Matolcsy wants much faster reduction of the fiscal deficit

HUNGARY - In Brief 19 Jul 2021 by Istvan Racz

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MNB governor Matolcsy published an article in Magyar Nemzet (a rightist daily newspaper), claiming that the fiscal deficit should be reduced to around 3% of GDP already in 2022. Instead of using the government budget, economic recovery should be financed by the MNB and the banking system, mobilising 'families' financial wealth' by proper incentives. All this would be possible if first inflation is 'broken down'. Hmm. This year's fiscal deficit target is 7.5% of GDP, next year's is set at 5.9% of GDP. A deficit of 3% of GDP appears to be quite far away. One would believe that much tighter fiscal policy (in an election year by the way) should go with looser MNB policy or GDP growth must suffer. Breaking down inflation and 'mobilising families' financial wealth' to boost growth would require much higher interest rates and a stronger forint. But how would it be compatible with the new Széchenyi Kártya GO loans to SMEs at fixed 0.1-0.5% interest rates or the new green loans backed by the MNB, including the green (environment-friendly) housing loan at fixed 2.5% interest?Needless to say that all this has little in common with the government's plans to return one year's income tax to families, to pay a six-month extra to armed services and to raise the statutory minimum wage by a substantial amount, all in 2022.Hmm. More on this will follow in our monthly report soon.