Hungary's new government plans to take steps to improve public finances and also wants deep reforms and tax cuts to boost competitiveness after it reveals the "true" state of the 2010 budget, the prime minister's spokesman said on Friday.
Hungary's forint plunged and government bond yields soared by around 30 basis points on Thursday as investors financing Budapest's high debt worried about finances under the new center-right administration.
Prime Minister Viktor Orban's spokesman said the government will produce an economic action plan within 72 hours after releasing its report on the budget, which is expected this weekend or early next week.
The forint — whose collapse in 2008 forced Hungary to seek $25 billion in IMF and EU aid — recovered slightly on Friday morning, but markets remained nervous.
"After the figures reflecting the true state of the economy (become public), within 72 hours an economic action plan must be put on the table," Prime Minister Viktor Orban's spokesman Peter Szijjarto told TV2 television.
"It cannot be about...an adjustment, about patching up (the economy)...measures aimed at improving the financial situation must be linked with deep structural changes," Orban told the same television channel over the phone from Brussels.
He did not give details on the plans. His spokesman reiterated the budget was in a "much worse" state than what the previous government put down in the budget law and "skeletons were continuously falling out of the closet".
The central bank has said the deficit could be 4.5 percent of GDP or 4.3 percent if the government freezes remaining budget reserves.
Analysts see a deficit of 5 percent but some government officials have pointed to a figure above 7 percent.
The European Commission on Thursday urged Hungary to cut its budget deficit faster, while government officials in Hungary reiterated the 2010 fiscal gap may reach almost twice the target agreed with the country's lenders including the EU.
The new center-right government, which wants to boost growth, has repeatedly warned in the past few weeks that the 2010 deficit could be much higher than the agreed target of 3.8 percent of GDP, blaming "fiscal skeletons" left by the previous Socialist administration.
"The leaders of the EU said that the real situation of the country must be revealed, so we are still ahead of the moment of truth," Szijjarto told TV2 television on Friday.
He also said EU leaders asked Hungary not to go down the path which Greece took, which revealed the true figures of its budget but did not take any countermeasures for months.
The government's action plan would include short-term measures to improve the balance and at the same time long-term measures to improve competitiveness, including structural reforms and tax cuts, Szijjarto said.
It was not clear how that could square with bringing the deficit under control.
"In the current uneasy global environment, market players do not simply frown on fiscal loosening but actually bite.
Therefore, it is a logical sequence to first help sustain a balanced fiscal consolidation path and only carry out major tax easing afterward," said Gyorgy Barta, economist at CIB Bank.
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