Hungary’s Top Banker Sees Need for Severe Austerity Measures

Sándor Csányi, chairman of Hungary’s largest commercial bank OTP, warned that the Hungary needs a budget adjustment of up to HUF 1,700 billion. The war in the Ukraine, international energy prices and the outcome of Hungary’s standoff with the European Union will decide the exact extent and nature of the budget adjustment, according to Csányi.

Hungary’s budget deficit widened to 6.8% of GDP last year on the back of lavish financial handouts to the electorate. The shortfall has already reached nearly 75% of the full-year 2022 target by the end of March.
It is against the backdrop of unsustainable public finances that Sándor Csányi, Hungary’s wealthiest man and the head of the largest commercial lender OTP Bank, warned that the government would need to embark on a budget adjustment to rein in the deficit.

Many factors
The exact nature of the adjustment depends on many factors, including where the government can get money, if not from a special bank tax, Csányi said in an interview with InfoRádió. The end of the war in Ukraine will be a decisive factor in the process, he said, adding that Russia’s decision to turn off the gas taps the other day have led to a surge in prices again.
A potential agreement with the European Union, which launched proceedings against Hungary this week on allegations of massive corruption, could ease the fiscal burden as it would lead to a steady stream of EU development funds. Should such an agreement be reached, a budget adjustment of HUF 500 billion would suffice, in Csányi’s opinion. If the war in Ukraine drags on and if Hungary fails to bring the standoff with Brussels to a satisfactory close, the extent of the fiscal adjustment may reach as much as HUF 1,700 billion, according to the top executive.
Csányi also criticized the government for capping the price of fuel and some basic food items. Such measures may be introduced temporarily, but not permanently, because both the industrial and trade segment will be impacted, he said. The government this week extended the deadline for the price cap through July 1.

Era of cheap money over
Speaking at a business event this week, Csányi warned that the “era of cheap money” in Hungary was over as interest rates were set to rise as high as 7%. With inflation “out of control” at the moment, the central bank’s target range of 2-4% annual inflation would only be reachable by 2024 the earliest.
Hungary’s economy – after expanding by 7.1% last year – may grow by only 3.5% in 2022, putting additional pressure on the country’s already strained financials. As a result, the budget deficit could be higher than initially planned and the current account deficit may reach 8% of GDP this year, according to Csányi.
He cited Hungary’s energy bill and the sluggish car industry as the backdrop to the deteriorating macroeconomic data. High energy prices are expected to persist in the long term, which is why there is no alternative but to adapt, he said. The executive warned that the Hungarian government’s utility price cuts are unsuitable, as people and businesses need to feel the burden of high energy prices to start saving.
"The good news is that there's still credit: the financing of the economy continues," Csányi told guests at the Agrár Gála. He projected a "speedy recovery" if the transfers from Brussels arrive and the war in Ukraine ends.