Hungary's 2011 Cash-Flow Budget Deficit 10% Wider Than Expected

Hungary's cash-flow-based budget deficit was 10% wider than expected in 2011, but the country is still likely to have met its budget target as measured by European Union accounting rules, the Economy Ministry said Monday.

The ministry attributed the overshoot in cash-flow-based data to one-off items such as the state acquisition of a major stake in energy company MOL Nyrt. (MOL.BU), the consolidation of debts at state rail firm MAV Zrt., and a capital increase at state-owned development bank MFB Zrt.

Excluding these one-off items, the ministry said the cash-flow-based deficit--excluding local councils--came to 619.8 billion forints ($2.7 billion), narrower than the HUF687.4 billion target.

According to EU accounting rules, Hungary expects to have made a budget surplus of HUF976 billion, or 3.5% of gross domestic product, the ministry said. These data usually become available by March, when local councils' data are included.

"The state of finances in the state infrastructure--excluding local councils--indicate that the [EU-norm] deficit target of 2.94% of GDP will be met for the whole of 2011," the ministry said.

The gap between the two figures is caused by differences in how the cash-flow-based and the EU-norm totals are calculated. Differences aren't related solely to whether one-off items are included or left out.

Hungary's government has made it a priority to keep its budget deficit under 3% of GDP this year and next. The country has been subject to an excessive deficit procedure by the European Commission ever since its accession to the EU in 2004. An EDP is triggered when an EU member state exceeds a specific debt ceiling. Last week, Hungary's EDP entered a new stage, meaning that unless it introduces tighter controls on its finances it may face sanctions.

In 2010, Hungary had a cash-flow-based deficit--excluding local councils--of HUF889.5 billion, or 3.2% of GDP.

-By Gergo Racz and Veronika Gulyas, Dow Jones Newswires; [phone]; [e-mail]