MNB's inaugural Report on Convergence, a publication planned to be released every year tracking Hungary's path to euro introduction, concludes that Hungary is currently the only new EU member country that does not meet any of the Maastricht criteria needed for the introduction of the common currency.
According to the report, Hungary and its CEE peers are poised to meet Maastricht inflation criteria in the next 18 months. With a relatively stable currency and state debt levels just a notch above the allowed 60% of GDP, Hungary's high fiscal deficit is identified by the report as the criterion that poses the most difficult challenge for Hungary on its way to adopt the single currency.
The report notes that without adjustments for pension fund contributions and Gripen aircraft purchases, Hungary's official budget deficit target amounts to 6.6% of GDP for 2006. Based on the draft 2006 budget, the central bank believes that this will be overshot by 1.2% of GDP, bringing the actual deficit to 7.8%. This could rise to 8.9% if running costs of PPP motorway projects are added to the deficit.
Throwing in the effects of tax cuts planned for 2007–2008, and with no additional tightening measures, the deficit could thus rise to 9.0–10.6% of GDP by 2008, the very year when Hungary is supposed to meet Maastricht deficit criteria for 2010 eurozone accession, says the report.