Citibank (NYSE: C) said on Thursday that Hungary’s financial situation is “very likely” to deteriorate in the nature future, but will remain “tolerable” for the International Monetary fund if the country overhauls its economy.
Hungary’s budget deficit may rise to as much as 4.5% of the country’s gross domestic product this year, compared to the government’s target of 3.8%, wrote Citibank analyst Eszter Gargyan in a note to clients today.
Gargyan, based in Budapest, said that there is a potential risk if the country’s new Cabinet that will be elected in its upcoming April elections does not implement an “ambitious reform agenda.”
Hungary, the first country in the E.U. to obtain a bailout from the International Monetary Fund in 2008, pledged to limit its spending during the worst recession the country has seen since the early 90’s so that it could meet the terms of a 20 billion-euro loan that it received.
“The deterioration in fiscal policy looks very likely,” Gargyan said. “This however should be considered tolerable by the IMF if it is aligned by structural reforms that increase potential growth, given that public-debt sustainability calls for urgent policy measures to reaccelerate the economy.”
