Hungary's budget deficit more critical than expected

Hungary's budget deficit is likely to considerably overshoot this year's target, with the budget gap widening to over 7 percent of gross domestic product, the central bank's governor warned Wednesday.

The government had set a deficit target of 4.7 percent of GDP for 2005, although the finance minister had earlier suggested the gap was likely to be larger.

The market will probably force the government to exercise more fiscal discipline at some point, but that could prove painful, Central Bank Governor Zsigmond Jarai said.

Hungary, which joined the European Union last May, risks derailing its euro adoption plans unless it manages to decrease its budget deficit to around 3 percent of the GDP.

Jarai criticized the government's budget proposal for next year, claiming it did not reflect the actual economic situation and failed to facilitate vital reforms.

"The Hungarian government continues to come up with easy solutions instead of acknowledging the extent of the public finance problems," said Lars Christensen, senior analyst at Danske Bank in Denmark.

The government is expected to present its 2006 budget proposal, which calculates with an economic expansion of 4 percent and an inflation of around 2 percent, to parliament on Sept. 30.

The cabinet has so far refused to divulge the deficit target it used to calculate next year's budget.