Hungary Keeps Budget Focus as Varga Retains Economic Role

(Bloomberg) -- Hungarian Prime Minister Viktor Orban pledged to keep his focus on stable public finances, for many investors the most important achievement of his past eight years in office, as the outlines of his new government began to take shape.

Orban, who won a third consecutive term in elections this month, said Economy Minister Mihaly Varga will continue to oversee fiscal policy as head of the "economic cabinet" within the government. In an interview with state radio on Friday, the prime minister said he also wants parliament to pass a draft 2019 budget before the summer recess to guarantee the predictability of his policies.

Since a rocky start when he took power in 2010, when his banking-industry and pension policies caused turmoil in Hungarian markets, investors have warmed to Orban’s efforts to meet European Union budget guidelines and cut public debt. Varga’s involvement signals that Hungary will continue reducing indebtedness and external vulnerabilities and keep to its budget goals, said Gergely Palffy, an analyst at Raiffeisen Bank International AG in Budapest.

“It’s good news for the market, showing the direction will remain the same,” Palffy said of Varga’s expected re-appointment.

Cabinet Shakeup

In the government reshuffle, Orban said he was planning the biggest changes in the prime minister’s office. That organization has been headed by Janos Lazar, a powerful figure in the ruling Fidesz party who’s overseen areas ranging from spy services to the distribution of EU subsidies. Lazar confirmed he would leave that position.

Investors are also watching what role Orban will give to Gyorgy Matolcsy, Varga’s predecessor as minister, who’s now serving as central bank governor, Palffy said. Orban has said he still regards Matolcsy as one of his most influential economic-policy lieutenants, and his current term as governor is set to expire next year.

In a speech to bankers on Friday, Varga reiterated plans to cut taxes while remaining on a debt reduction path and keeping economic growth at about 4 percent per year, according to an email from his ministry. These policies will allow taxes and social security contributions to fall to a “level below regional competitors,” Varga said, without specifying the planned rates.

Separately, news website 444.hu reported, without naming its sources, that Fidesz would use its two-thirds parliamentary majority to centralize oversight of Hungary’s courts, giving more authority to the Justice Ministry and abolishing the National Judicial Office as an independent institution. Fidesz Deputy Chairman Gergely Gulyas said in an interview with Bloomberg this month that a judicial overhaul wasn’t among the government’s top priorities.

--With assistance from Marton Eder

To contact the reporters on this story: Andras Gergely in Budapest at agergely@bloomberg.net, Gabriella Lovas in Budapest at glovas2@bloomberg.net.

To contact the editors responsible for this story: Scott Rose at rrose10@bloomberg.net, Michael Winfrey, Peter Laca

©2018 Bloomberg L.P.