IMF Executive Board Completes Fifth Review Under Hungary's Stand-By ArrangementPress Release No. 10/110
March 24, 20010
The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Hungary’s economic performance under a program supported by a Stand-By Arrangement (SBA). The completion of the review makes available SDR 725 million (about €825 million or US$1,100 million), but the authorities do not intend to draw this amount. Along with the undrawn amount from the fourth review (also SDR 725 million), the availability of Fund resources will help to provide insurance against the impact of any unforeseen deterioration in external financing conditions. The total amount disbursed under the program remains SDR 7.64 billion (about €8.7 billion or US$11.6 billion.
The SBA was approved on November 6, 2008 (see Press Release No. 08/275) for SDR 10.54billion (about €12 billion or US$16 billion). The arrangement entails exceptional access to IMF resources, amounting to 1,015 percent of Hungary’s quota.
Following the Executive Board’s discussion on Hungary, Mr. John Lipsky, First Deputy Managing Director and Acting Chair, said:
“The steadfast implementation of prudent economic policies over the past year-and-a-half has contributed to strengthening investor confidence and a significant improvement in external financing conditions, thus helping economic recovery. As in the case of the last review, the authorities do not intend to draw the amount that would be made available upon completion of this review. The program continues to focus on improving fiscal sustainability and preserving financial stability, providing the basis for strong, sustainable growth in the medium term.
“Important progress has been made in fiscal sustainability, reflecting structural spending reforms to the pension system, social transfers, and subsidies. At the same time, tax reform has shifted the tax burden from labor to consumption, which should boost labor participation and potential growth over the medium term. Strict expenditure control, cautious use of contingency buffers, and readiness to take further action if necessary are required to meet the fiscal targets. Additional structural measures will be needed to put government debt firmly on a declining path. Restructuring the public transport system must be tackled forcefully to reduce its drain on the budget.
“In the financial sector, liquidity support has been provided in a timely manner, and banking supervision and the remedial action framework have been substantially enhanced. The upgrading of the Hungarian Financial Supervisory Authority to an autonomous agency represents significant progress, and consistent implementation of the related reforms to the institutional framework is essential. Further improvements in banking supervision and the resolution framework for banks remain important.
“Monetary policy should continue to ease gradually and cautiously, to the extent allowed by financial market conditions. Maintaining an adequate level of international reserves is important, taking into account available access to official external financing.”