## Press Release: IMF Approves Stand-By Credit for Hungary

_IMF News, March 15, 1996_

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**Canonical URL:** [Press Release: IMF Approves Stand-By Credit for Hungary](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9610)

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## Bibliographic details
- Published: March 15, 1996

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### IMF approval and facility details
- The IMF approved a stand-by credit for Hungary authorizing drawings up to the equivalent of SDR 264.18 million (about $387 million) over the next 23 months to support the Government's economic program through end-1997.
- The Hungarian authorities do not intend to make any drawings and will treat the stand-by as precautionary.
- Hungary joined the IMF on May 6, 1982; its quota is SDR 754.8 million (about $1,105 million).
- Its outstanding use of IMF credit currently totals SDR 259 million (about $379 million).

### Background and recent economic context
- Early 1990s: Hungary faced a number of external shocks and was constrained by high levels of taxation and social expenditure and by the size and inefficiency of the public sector.
- External current account deficit deteriorated markedly to 9-10 percent of GDP in 1993-94.
- Structural reform slowed to a halt amid relatively subdued economic activity and already high external debt and debt-service ratios.
- 1995 corrective policy package measures included:
  - Devaluation of the forint and introduction of a crawling exchange rate peg.
  - Tightening of public sector wage policy.
  - Budgetary measures.
- Reported 1995 outcomes:
  - Positive results on the balance of payments.
  - Declines in high levels (in relation to GDP) of both public expenditures and revenues.
  - Progress on privatization.
  - Output growth remained positive in 1995.

### The 1996-97 program: targets and policy instruments
- Program retains features of 1995: exchange rate crawl and limits on public sector wages; the program is more ambitious in scope.
- Output growth targets:
  - 2 percent in 1996
  - 3.2 percent in 1997
  - From 1.7 percent in 1995
- Inflation targets (decay from 1995):
  - 16.6 percent in 1996
  - 12.7 percent in 1997
  - From 28.3 percent in 1995
- External current account deficit targets:
  - 4 percent of GDP in 1996
  - 3 percent of GDP in 1997
  - From 5.6 percent of GDP in 1995
- Fiscal objectives:
  - Consolidated government deficit, net of privatization receipts, is programmed to fall to 3.9 percent of GDP in 1996 and 3 percent of GDP in 1997, from 6.8 percent of GDP in 1995, primarily through lowering real expenditures.
  - Authorities will seek to reduce the fiscal deficit to a level consistent with the current account and inflation targets and to continue the gradual decline in the comparatively high levels, in relation to GDP, of both expenditure and revenue.
- Monetary and exchange rate policy:
  - Guided by the preannounced nominal rate of depreciation of the forint.
  - Authorities reduced the monthly rate of crawl from 1.3 percent in the second half of 1995 to 1.2 percent in the first half of 1996.
- Wage policy:
  - Wage policy will be restrained as it is critical to the success of fiscal adjustment, the preservation of competitiveness, and the realization of the inflation target.

### Structural reform priorities
- Focus areas under the program:
  - Improving budget planning, monitoring and execution, and placing different levels of government on sounder financial footing.
  - Strengthening the social security system.
  - Restructuring and privatizing state-owned enterprises, including banks.
  - Continuing the liberalization of international transactions.

### Addressing social needs
- Objective of social security reform:
  - Generate enough savings to allow for a significant reduction in contribution rates, while ensuring the viability of the system.
- Health sector reform:
  - Reform of provision of medical services will be undertaken while ensuring adequate support to the truly needy.

### Risks and implementation challenges
- Program success faces risks from:
  - Adverse external developments, such as weak growth in Western Europe.
  - Fiscal and monetary slippage.
- Authorities need to be ready to prepare for these risks.

### Key statistics and selected economic indicators (as presented)
- Real GDP (percent change):
  - 1993: -3.0
  - 1994: -0.8
  - 1995*: 2.9
  - 1996**: 1.7
  - 1997**: 2.0
  - 1998**: 3.2
- Consumer prices (end of period):
  - 1993: 24.7
  - 1994: 21.1
  - 1995*: 21.2
  - 1996**: 28.3
  - 1997**: 16.6
  - 1998**: 12.7
- Primary fiscal balance, excluding grants (deficit –) (Percent of GDP):
  - 1993: –1.7
  - 1994: –3.3
  - 1995*: –0.8
  - 1996**: 4.5
  - 1997**: 4.4
- External current account balance, excluding official transfers (deficit –) (Percent of GDP):
  - 1993: 0.9
  - 1994: –9.0
  - 1995*: –9.5
  - 1996**: –5.6
  - 1997**: –4.0
  - 1998**: –3.0
- Gross investment (Percent of GDP):
  - 1993: 15.2
  - 1994: 19.4
  - 1995*: 21.5
  - 1996**: 21.8
  - 1997**: 23.6
  - 1998**: 24.6
- Gross national savings (Percent of GDP):
  - 1993: 14.4
  - 1994: 10.0
  - 1995*: 13.4
  - 1996**: 17.7
  - 1997**: 21.0
  - 1998**: 22.8
- Net external debt (Percent of GDP):
  - 1993: 35.1
  - 1994: 38.8
  - 1995*: 45.8
  - 1996**: 38.7
  - 1997**: 37.9
  - 1998**: 35.6

*Estimated
**Program

*International Monetary Fund. Press Release No. 96/10, March 15, 1996.*

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## References

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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9610_