“The government is calculating with a growth scenario of between plus 3.7 percent and minus 0.3 percent for 2020, depending on the effect – its severity and prolongation – that the coronavirus epidemic has on the global economy”, Minister of Finance Mihály Varga said on Tuesday on Inforadio’s Arena show. According to Mr. Varga, the worst-case scenario must also be examined.

The Minister said that when the government was planning the 2020 budget in the spring of 2019, it calculated with economic growth of around 4 percent, and adjusted the revenue and expenditure sides of the budget to that. The budget also calculated with a deficit of 1 percent and a 1 percent reserve of some 480-490 billion forints (EUR 1.44 billion).

Although some of this reserve has been spent in recent months, there remains a significant sum to enable the provision of assistance in cases of vis major. If the crisis is extremely severe and affects many sectors, however, this reserve may prove to be insufficient. “The government is waiting for enterprises to indicate to what extent certain sectors are being affected by the crisis, so that it can introduce targeted measures”, the Minister explained.

Mr. Varga said that some of the economic effects of the coronavirus epidemic are already apparent, with 40-50 percent cancellations not unrare in the hotel industry, and not only Chinese guests, but European guests also staying away. The tourism and hospitality sectors will be seriously affected by this, he stated, adding that in his opinion it will be a good result if they manage to break even.

According to the Minister, the government is closely monitoring how other countries are handling the economic effects of the virus, and it seems that to date they have only introduced instruments aimed at preventing enterprise bankruptcy. The Ministry is thinking in terms of several steps, and is examining what measures to introduce if the virus only causes an economic slowdown, and what are required if it causes an extremely severe crisis. “We must react to the real requirements of businesses and protect the results of the past ten years”, the Minister emphasised.

He also spoke about the fact that in certain instances the crisis could hinder the repayment of consumer loans. The Minister recommended that people planning to take on a new loan should exercise maximum caution.

Mr. Varga said staff at the Ministry of Finance have the necessary knowledge and experience to be able to introduce immediate, emergency measures in such a situation. “The Hungarian government has the capability to react quickly, at an almost action level, to situations that arise. As an example, he mentioned the Economy Protection Action Plan introduced last year, the measures of which have partly already had an effect, while in other countries such plans are still under development. He added that what would be truly effective were for the countries of the European Union to introduce joint measures, and this will definitely be a subject of discussion at next week’s meeting of the Economic and Financial Affairs Council (ECOFIN).

In reply to a question on whether the healthcare sector can expect further funding in addition to the 8 billion forints (EUR 23.8 million) already announced, the Minister said that would depend on how the situation develops. “Based on the latest news, the healthcare system is capable of preparing for even the most difficult situation. Assuring the operation of the healthcare system is not a question of finance; the reserve includes enough money to reinforce the care system if the extent and severity of the epidemic is more serious than expected”, he emphasised.

Mr. Varga said the planning of next year’s budget has already begun at government and ministerial level. He said he does not regard it as necessary for Parliament to readopt the budget again in the autumn. “In previous years, we have succeeded in planning the budget with a relatively high level of security in the spring. We need to set aside a larger reserve, but otherwise the economy always provides enough room for manoeuvre to be able to realise emergency expenses from addition revenues that have been realised during the course of the year or via reallocations”, he explained. “If the situation is extremely uncertain, we can ask ourselves if it is worth getting down to deciding on the budget in May or June, but for the moment there is no viewpoint that would suggest that it should be postponed”, he stated.

The Minister also spoke about the fact that the measures that need to be considered are those that can facilitate the stabilisation of economic growth in a changing world, and that are capable of maintaining a level of growth that is over two percent above the EU average. The goal is for Hungary to achieve 85-90 percent of the EU’s average level of economic development by 2030, he explained. Mr. Varga confirmed that no decision has been arrived at so far with relation to the local business tax (HIPA), and the impact analysis is still ongoing. In reply to a question concerning the termination of the transaction tax, the Minister said that during the development of the budget, the government will have to assess what tax measures are most effective.

With relation to the introduction of the Euro, Mr. Varga explained that for the moment there is no reason for Hungary to hurry. “Similarly to Poland the and Czech Republic, our position is that the flexibility of national currencies make the country more suited to being able to provide rapid reactions to changes in the global or European economy”, the Hungarian Finance Minister said.