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Hungarian Finance Minister Tibor Draskovics is considering introducing a limit on expenditures of government ministries in order to stop a quick increase in the central budget deficit, according to a Central East European regional survey published by London-based investment bank Dresdner Kleinwort Wasserstein (DrKW).

Citing information obtained from local reports, DrKW said the Finance Ministry is mulling a proposal that aims to limit development expenditures of government ministries to 35% of their planned budget in the first half of 2005.

The report adds that at a recent Budapest visit of DrKW analysts Draskovics hinted that certain expenditures could be capped. Draskovics, however, said the government cannot make an informed decision on whether such a move is necessary until it sees deficit figures of the first half of 2005. In this case, any possible modification to the budget cannot occur before July, which is the second half of the year, DrKW adds

If such a cap on expenditures is introduced in either the first or the second half of the year, DrKW said it will welcome the move, because it will help the country meet its deficit target for 2005.

In its report, DrKW said that “it is questionable” to what extent the government can reduce budget deficit in a year that precedes an election year. The investment bank maintains its forecast that the Hungarian government will exceed its budget deficit target of 4.7% of GDP.

“The Finance Minister does not plan to limit expenditures of government ministries,” Finance Ministry spokesman Ferenc Pichler said in reaction to DrKW’s report. He said the budget law for 2005 includes resolutions on safety reserves. It is included in the rules on the safety reserves that in the first half of the year certain expenditures are capped at 35% of the annual plan. That is not a special restriction, but a precautionary measure introduced earlier because a large chunk of central budget revenues are collected in the second half of the year.

Pichler said when Finance Minister Draskovics commented on public sector deficit in February, he admitted that state revenues from VAT were behind expectations. At that time Draskovics said if the public sector deficit does not show an improving trend, then the government will decide on not to spend public sector saving in order to balance the deficit.

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