(Bloomberg) — Hungarian Prime Minister Viktor Orban unexpectedly decided to start consolidating the budget in the midst of a tight campaign after a pre-election spending spree threatened to jeopardize financial stability.
The government created 350 billion forint ($1.1 billion) in additional budget reserves for this year by capping the spending of ministries and delaying unspecified investments, according to a cabinet decision published late Thursday.
The move will “strengthen financial stability and further improve investor sentiment,” the Finance Ministry said in a statement.
In his weekly radio interview on Friday, Orban said budget spending must be sustainable.
“Our job is to raise wages but also to remember: If you distribute money that you haven’t yet produced, then you’ll eventually go bankrupt,” he said.
The decision is a U-turn for a government that had earlier doubled down on spending to woo voters before general elections early next year.
Earlier this week, central bank Governor Gyorgy Matolcsy issued the latest in a string of warnings that government spending was posing a “serious risk” for an economy that by now has the worst public finances in central Europe with an elevated government debt level and a twin deficit.
In particular, Matolcsy urged Orban to scrap a planned $5 billion purchase of Budapest Airport, which he said was overpriced and ill-timed.
Orban has started a more than $7.5 billion spending campaign before the April parliamentary elections, representing 16% of gross domestic product. His government seeks to spur an economic recovery from the Covid-19 pandemic and boost support for his Fidesz party, which polls show is in a dead heat with the opposition after more than a decade in power.
That spending, which includes almost $2 billion in tax rebates for families and pension increases, won’t be affected by the start of budget consolidation, according to the Finance Ministry statement.
The central bank on Thursday delivered its fifth interest-rate hike in less than a month, raising the effective base by a cumulative 150 basis points to 3.3%.
(Updates with premier’s comments in fourth, fifth paragraphs)
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