{ "title": "Hungary: Staff Concluding Statement of the 2024 Article IV Mission", "publication": "IMF News, June 21, 2024", "sourceUrl": "https://www.imf.org/en/news/articles/2024/06/21/mcs-062124-hungary-staff-concluding-statement-of-the-2024-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2024/06/21/mcs-062124-hungary-staff-concluding-statement-of-the-2024-article-iv-mission", "overlayPath": "/en/news/articles/2024/06/21/mcs-062124-hungary-staff-concluding-statement-of-the-2024-article-iv-mission/index.md", "summary": "An International Monetary Fund (IMF) mission, led by Anke Weber and comprising Chris Jackson, Jakree Koosakul, Augustus Panton, and Atticus Weller, visited Budapest during June 11-21 to conduct discussions on the 2024 Article IV Consultation with the Hungarian authorities.", "publishDate": "2024-06-21", "sections": [ { "heading": "Mission overview", "content": "- An IMF mission, led by Anke Weber and comprising Chris Jackson, Jakree Koosakul, Augustus Panton, and Atticus Weller, visited Budapest during June 11-21 to conduct discussions on the 2024 Article IV Consultation.\n- The mission assessed recent macroeconomic developments, policy settings, and structural challenges, and issued policy advice to support sustainable and inclusive growth." }, { "heading": "Key near-term macroeconomic findings and risks", "content": "- Hungary is emerging from a period of shocks: the pandemic, Russia’s war in Ukraine, and crisis-related stimulus widened fiscal and external imbalances and triggered double-digit inflation in 2022.\n- Monetary policy tightening, falling commodity prices, and a tighter fiscal stance in 2023 helped rapidly reduce inflation; labor market and financial sector have remained resilient.\n- A large current account deficit in 2022 turned into a surplus; output is starting to recover.\n- Risks are tilted to the downside for growth and upside for inflation:\n - Absence of measures addressing fiscal imbalances and structural challenges could weaken investor confidence and deter private investment.\n - Lack of progress in governance reforms could prolong suspension of important EU funds.\n - Forint depreciation and higher risk premia could prolong tight monetary policy and weaken growth.\n - Inflation could rise again with energy supply disruptions or faster-than-expected Hungarian wage growth.\n - Monetary policy miscalibration by major economies could impact Hungary’s macroeconomic and financial stability." }, { "heading": "Economic outlook (IMF staff projections)", "content": "- 2023: real GDP contracted by 0.9 percent.\n- 2024: real GDP projected to grow by 2.3 percent, driven by domestic consumption.\n- Q4 2024: inflation projected to increase to 4.2 percent year‑on‑year.\n- 2025: real GDP projected to grow by 3.3 percent as investment gradually picks up.\n- Medium term: growth expected to converge to potential of around 3 percent.\n- 2026: inflation projected to durably converge to the authorities’ 3 percent target.\n- Current account: a modest surplus expected in 2024 with gradual improvement over the medium term in line with anticipated increase in battery and electric vehicle exports." }, { "heading": "Strengthening fiscal sustainability", "content": "- Fiscal positions and debt:\n - Government targets: fiscal targets of 4.5 percent of GDP in 2024 and 3.7 percent of GDP in 2025.\n - Staff projection without additional measures: fiscal deficit to reach 5.3 percent of GDP in 2024 and exceed the Maastricht limit of 3 percent of GDP through 2026.\n - Public debt ratio projected to remain above 70 percent of GDP through 2028.\n- Recommended fiscal goals and framework:\n - Aim to bring the deficit below 3 percent of GDP by 2026 to enable exit from the EU’s excessive deficit procedure.\n - Bring the structural deficit to 1.5 percent of GDP by 2029, in line with the preliminary assessment of the new EU fiscal framework.\n - Root measures in a fully‑fledged medium-term budget process, as required by the new EU Governance Framework.\n- Tax and spending recommendations:\n - Move toward a universal VAT rate with fewer exemptions to enhance efficiency and simplify administration.\n - Consider higher marginal personal income tax rates for high earners to increase revenue and enhance fairness.\n - Make corporate taxation more equitable and efficient by rationalizing tax incentives and increasing the tax rate, using additional revenues to eliminate distortive windfall taxes.\n - Explore scope for raising more revenue from property taxes.\n - Limit retail utility subsidies to a basic subsistence amount to protect vulnerable households, yield savings, reduce fossil fuel consumption, and insulate the budget from energy price fluctuations.\n - Rationalize the public wage bill and goods and services spending, which are above EU averages, to provide further savings and room for more productive spending, including on education.\n - Implement reforms to contain long-term spending pressures related to pensions and healthcare.\n- Fiscal risk management:\n - SOE assets have grown significantly over the past five years; the stock of government guarantees has doubled relative to GDP.\n - Develop a comprehensive centralized fiscal risk management framework to improve monitoring and assessment of contingent liabilities.\n - Prudently manage, centrally monitor, and provision guarantees, keeping the stock of outstanding guarantees on a downward path." }, { "heading": "Bringing inflation durably back to target and monetary policy", "content": "- Monetary stance:\n - Policy rates need to remain in restrictive territory into the next year to deliver a sustainable return of inflation to target.\n - Loosening to date has been broadly appropriate; monetary policy remains tight and simplification of the toolkit improves communication.\n - Limited scope for further rate cuts this year given elevated underlying inflation pressures, particularly for services.\n - Exchange rate is likely a binding constraint on the pace of loosening given its importance for inflation dynamics.\n- Central bank governance and balance sheet:\n - Recent amendment to the central bank law no longer mandates recapitalization from the budget within a specific timeframe, allowing the MNB to offset current losses against future income.\n - MNB’s balance sheet position will improve gradually as assets mature and policy rates fall.\n - To ensure adequate capitalization: the law specifies that the MNB should not pay out advanced dividends and no dividends are to be distributed until the minimum capital required by the law is reached.\n - Activities related to creation of a business or foundation should be scaled down if they are unclear relative to the MNB’s primary objective of price stability.\n- Exchange rate and reserves:\n - Authorities remain committed to a flexible exchange rate regime to facilitate adjustment to shocks.\n - Staff assesses reserves to be adequate.\n - Further reserve accumulation during risk-on periods would help bolster external buffers." }, { "heading": "Deepening financial sector resilience", "content": "- Sector resilience and vulnerabilities:\n - Financial sector remained resilient despite sharpest monetary tightening in decades.\n - Macroprudential frameworks, capital and liquidity buffers are well above regulatory thresholds; NPL ratio for banks is relatively stable.\n - Structural changes: substantial increase in share of fixed-rate mortgages and lower household leverage have dampened housing market effects.\n- Emerging risks and recommended actions:\n - High profitability is likely temporary; potential lagged effects on NPLs, interest rate and maturity risks in corporate sector, and default risks in CRE remain.\n - Housing programs and easing conditions could fuel housing demand and price increases—monitor to avoid renewed imbalances.\n - Prevent migration of risks to non-bank institutions through robust surveillance and supervision.\n - Build resilience by locking high bank profits into capital buffers:\n - Scheduled increase of the countercyclical capital buffer (CCyB) and reactivation of the systemic risks buffer for CRE in July 2024 are appropriate.\n - Moving to a higher positive neutral rate than targeted for the CCyB could be an option to further boost resilience.\n - Prudential climate-policy approach:\n - MNB should play an active role in climate-risk supervision, but prudential regulation should remain risk-focused and consistent with the MNB’s price and financial stability mandate.\n - AML/CFT:\n - Hungary has strengthened AML/CFT frameworks and should prioritize implementing the EU's 2024 AML/CFT legislative package agreed in April 2024 while enhancing national frameworks for non-profit organizations, as highlighted by MONEYVAL.\n- Market distortions and credit allocation:\n - Interest rate caps and subsidized lending have distorted market rates and artificially lowered lending and deposit rates; these measures are likely regressive and may encourage credit rationing.\n - Caps on deposits and SME lending rates ended in April 2024; mortgage caps and various voluntary caps remain and should be fully phased out.\n - Scale back fiscal incentives, including for house ownership, to moderate future house price growth and safeguard financial stability.\n - State-owned banks’ subsidized lending should be carefully monitored and targeted to address market failures." }, { "heading": "Reforms for bolstering sustainable and inclusive growth", "content": "- Structural constraints on productivity:\n - Long-standing challenges: strong presence of state-owned enterprises in some key sectors, stringent entry conditions, rigid industry structures, inequalities of opportunity, and lagging digitization.\n - Sustained implementation of a reform program addressing these issues is necessary to compete in the digital and low-carbon economy.\n- Digital competitiveness and AI:\n - Hungary is highly exposed to rapid advancement of AI technologies.\n - Authorities should prioritize and speed up reforms in the National Digitalization Strategy and implement the new EU AI Act.\n - Further measures: invest in reskilling the workforce and promoting STEM education.\n- Climate transition:\n - Hungary committed to the EU Green Deal, aiming to cut emissions by 50 percent (relative to 1990) by 2030.\n - Explicit and implicit fossil subsidies are above the EU average; share of renewables in the energy mix remains among the lowest in the EU.\n - Phasing out fossil-fuel subsidies would enhance energy efficiency and security, level the playing field for renewable investment, and generate fiscal savings.\n - Investment needs: renewable-compatible energy grids and electric charging stations.\n- Regional disparities and social policy:\n - Regional income disparities remain high and may worsen with digital and green transitions.\n - Recommend means-tested social transfers for vulnerable households and reskilling of workers for the green and digital transitions to promote social cohesion and inclusion.\n - Policies must be calibrated to support regional economic agility during structural transformations.\n- Governance and industrial policy:\n - Good governance is foundational for structural transformation; progress would enhance predictability and unlock EU financing.\n - Industrial policy (IP) should target market failures, be time-bound, consistent with EU norms, and avoid negative cross-border spillovers.\n - State presence in some sectors, including recent telecom and airport acquisitions, should be guided by legal, regulatory and policy frameworks to ensure fair competition." }, { "heading": "Closing remarks", "content": "- The mission emphasized that with the right policies—credible, growth-friendly fiscal adjustment, stability-oriented macro-financial policies, and coordinated structural reforms—sustainable and inclusive growth is within Hungary’s reach.\n- The mission thanked the Hungarian authorities and interlocutors for productive collaboration, constructive policy dialogue, and warm hospitality.\n\nSource: Hungary: Staff Concluding Statement of the 2024 Article IV Mission (June 21, 2024).\n\n---\n\n\n References\n\n- Hungary and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/06/21/mcs-062124-hungary-staff-concluding-statement-of-the-2024-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2024/06/21/mcs-062124-hungary-staff-concluding-statement-of-the-2024-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2024/06/21/mcs-062124-hungary-staff-concluding-statement-of-the-2024-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2024/06/21/mcs-062124-hungary-staff-concluding-statement-of-the-2024-article-iv-mission/bundle-manifest.json)", "Published: June 21, 2024", "An IMF mission, led by Anke Weber and comprising Chris Jackson, Jakree Koosakul, Augustus Panton, and Atticus Weller, visited Budapest during June 11-21 to conduct discussions on the 2024 Article IV Consultation.", "The mission assessed recent macroeconomic developments, policy settings, and structural challenges, and issued policy advice to support sustainable and inclusive growth.", "Hungary is emerging from a period of shocks: the pandemic, Russia’s war in Ukraine, and crisis-related stimulus widened fiscal and external imbalances and triggered double-digit inflation in 2022.", "Monetary policy tightening, falling commodity prices, and a tighter fiscal stance in 2023 helped rapidly reduce inflation; labor market and financial sector have remained resilient.", "A large current account deficit in 2022 turned into a surplus; output is starting to recover.", "Risks are tilted to the downside for growth and upside for inflation:", "2023: real GDP contracted by 0.9 percent.", "2024: real GDP projected to grow by 2.3 percent, driven by domestic consumption.", "Q4 2024: inflation projected to increase to 4.2 percent year‑on‑year.", "2025: real GDP projected to grow by 3.3 percent as investment gradually picks up.", "Medium term: growth expected to converge to potential of around 3 percent.", "2026: inflation projected to durably converge to the authorities’ 3 percent target.", "Current account: a modest surplus expected in 2024 with gradual improvement over the medium term in line with anticipated increase in battery and electric vehicle exports.", "Fiscal positions and debt:", "Recommended fiscal goals and framework:", "Tax and spending recommendations:", "Fiscal risk management:", "Monetary stance:", "Central bank governance and balance sheet:", "Exchange rate and reserves:", "Sector resilience and vulnerabilities:", "Emerging risks and recommended actions:", "Market distortions and credit allocation:", "Structural constraints on productivity:", "Digital competitiveness and AI:", "Climate transition:", "Regional disparities and social policy:", "Governance and industrial policy:", "The mission emphasized that with the right policies—credible, growth-friendly fiscal adjustment, stability-oriented macro-financial policies, and coordinated structural reforms—sustainable and inclusive growth is within Hungary’s reach.", "The mission thanked the Hungarian authorities and interlocutors for productive collaboration, constructive policy dialogue, and warm hospitality.", "[Hungary and the IMF](http://www.imf.org/external/country/HUN/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2024/06/21/mcs-062124-hungary-staff-concluding-statement-of-the-2024-article-iv-mission/index.md", "json": "/en/news/articles/2024/06/21/mcs-062124-hungary-staff-concluding-statement-of-the-2024-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2024/06/21/mcs-062124-hungary-staff-concluding-statement-of-the-2024-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T03:07:15.405Z" }