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UPDATE 1-Hungary's 2020 budget deficit could reach 7-9% of GDP -ministry

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BUDAPEST, Aug 24 (Reuters) - Hungary’s budget deficit could reach 7% to 9% of GDP this year due to a deeper-than-expected recession and costs linked to the coronavirus pandemic, the Finance Ministry said on Monday.

That would be the highest deficit in Hungary since 2006, when the gap widened to above 9% under a previous Socialist-led government. It is also much higher than the government’s earlier revised target of 3.8% for this year released in May.

The ministry said that due to measures taken so far and expected further steps aimed at offsetting the negative impacts of the pandemic on the economy, “a modification of the budget deficit target is warranted.”

Hungary’s economy shrank by an annual 13.6% in the second quarter, faster than analysts’ forecasts.

Prime Minister Viktor Orban, a nationalist who has been in power for more than a decade, said on Friday that his government would draft a two-year plan to boost the economy by the middle of next month.

Finance Minister Mihaly Varga flagged last month that the economy could shrink by around 5% this year.

David Nemeth, an economist at K&H Bank, said the government was likely planning fresh tax cuts and a possible extension of the wage support programme to help the economy.

He said financing the deficit was unlikely to be a problem, as bond auctions have been going well, and the central bank also has room to increase its bond purchases, while another euro bond issue could also be on the cards.

In May the debt agency increased its 2020 target to 4 billion euros ($4.7 billion) worth of foreign bond issuance, plus half a billion euros worth of international loans. Hungary has already issued 2 billion euros’ worth of euro bonds and a green euro bond. ($1 = 0.8448 euros) (Reporting by Krisztina Than; Editing by Susan Fenton)

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