Hungary—Post-Program Monitoring DiscussionsPress Release No. 11/129
April 11, 2011
A mission of the International Monetary Fund (IMF), led by Mr. Christoph Rosenberg, held discussions with the Hungarian authorities during April 4-11, 2011 as part of the regular Post-Program Monitoring consultation process. The team worked in close cooperation with a parallel mission from the European Commission. At the conclusion of the visit, Mr. Rosenberg made the following statement:
“The Hungarian economy is gradually recovering from the 2008-09 crisis. Exports and industrial production are expanding, but domestic demand remains feebleamid contracting credit and persistently high unemployment. Overall, output is projected to grow by about 2½ percent both this year and next. The 2012 outlook, however, depends crucially on the eventual size and composition of the planned structural reform package which may initially weigh on aggregate demand, before boosting economic growth in the medium-term. Inflationary pressures stemming from increases in global energy and food prices appear relatively contained and inflation is projected to fall to the central bank’s target by the end of the policy horizon.
“We expect the recorded 2011 fiscal balance to be broadly in line with the authorities’ recently revised target of a 2 percent of GDP surplus; importantly, this projection includes very large one-off revenues from asset transfers from the recently dissolved second pension pillar. Following the substantial weakening of the fiscal stance in 2010-11, a strong fiscal effort—including but not limited to the recently announced measures—will be necessary to bring the 2012 deficit close to 3 percent of GDP.
“The government’s Szell Kalman plan is a welcome step towards growth and sustainability, addressing many of the concerns raised in the IMF’s January 2011 Article IV consultation. Important details still need to be specified, however, including in crucial reform areas such as restructuring local governments and state owned transport companies. To ensure durability and avoid putting a disproportionate burden on the poor, the envisaged social benefit cuts should be strictly income-tested rather than applied across the board. It will also be important to reduce policy uncertainty and improve the investment climate, including by quickly eliminating sectoral levies.
“Steadfast implementation of the Szell Kalman plan will be critical in order to secure planned fiscal savings, boost confidence and maintain market access. A successful reform effort is all the more important in view of a challenging sovereign amortization schedule over the next few years. In this context, the government and central bank should make every effort to safeguard external and fiscal buffers.
“Measures to restore functioning of the mortgage market are welcome, especially the planned elimination of the foreclosure moratorium which has hindered the resumption of credit growth. In designing support measures, care should be taken to minimize potential fiscal cost and moral hazard.