Budapest: Hungary's new Socialist-led government, eyeing European Union (EU) entry within two years, is pledging higher-than-forecast economic growth despite accusing its predecessors of leaving the Budget cupboard all but bare.

The Socialists and their Liberal allies, who took power under Prime Minister Peter Medgyessy on May 27, remain committed to costly welfare reforms in the ex-Communist country, officials said as they got feet under desks this week.

They are forecasting growth of four per cent this year, compared to 3.5 per cent forecast in a recent report by the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD).

"We agree with the chief points of the OECD and IMF report, and see the risk of a rising Budget deficit and of fast accelerating wage increases. But we do not think that this should call for more rigorous monetary policy," said Finance Ministry spokesman Daniel Mate.

The Socialists and Liberal Free Democrats were credited with implementing painful economic reforms when they were last in power from 1994-98, before they were ousted by conservative Prime Minister Viktor Orban.

Orban was ousted in April elections, leaving Medgyessy to prepare for the final straight of preparations for membership of the EU, which Budapest hopes to join in 2004.

This week the government plans to amend the Budget, notably to launch ambitious welfare moves including a record 50 per cent pay increase for some 600,000 public sector workers.

The Budget will leave the planned annual deficit of 486.1 billion Forints (1.98 billion Euros, $ 1.78 billion) unchanged, said Finance Minister Csaba Laszlo.

But he lamented that his officials must include an unexpected Budget shortfall of 176 billion Forints (727 million Euros, $ 686 million), a legacy of the previous government.

"By the end of May, the Budget deficit reached 81.6 per cent of the annual target. We have had preliminary calculations but this is worse than anything I had expected," Laszlo admitted.

He said the Budget gap would be financed "by fiscal receipts including taxes on companies' profits, income tax and value-added tax".

New Ministers asserted last week that by the time it left, the outgoing government spent up to 94 per cent of the Ministries' annual allocations, and tied up even more after it lost April elections.

Medgyessy has ordered probes with state-owned organisations to find if money was spent illegally.