Hungary’s state debt as a percentage of GDP could start falling in 2011 if strict fiscal discipline is maintained and if fiscal reforms already started as well as ones planned are carried out, Iryna Ivaschenko, the IMF’s resident representative in Hungary, said in a statement to MTI.
Ms Ivaschenko noted that Hungary’s current level of state debt, at 80pc of GDP, is very high in comparison with other countries in Central and Eastern Europe.
Hungary’s government has already taken many significant steps in restructuring the pension system, the social system and centrally allocated subsidies, but these reform steps must be followed by strict control of expenditures, Ms Ivaschenko said. Hungary’s neighbours did not have to undertake budget austerity measures, but Hungary was hard-hit by the crisis in the autumn first of all because it was made vulnerable by its fast growing state debt and had to ask for help from the IMF, the EU and the World Bank.
The IMF approved a SDR 10.5bn (EUR 12.4bn at the time) standby loan in November 2008 as part of a EUR 20bn financial support package that also involved the EU and the World Bank.
The IMF, in close cooperation with EU experts, was flexible, so when Hungary’s macroeconomic outlook worsened compared to earlier expectations, the general government debt target was changed twice, Ms Ivaschenko said. It is important to note that mid-term structural measures were a condition for the agreement between the government and the IMF to raise the 2009 deficit target, she added.
Hungary received a positive assessment in its latest review — the third — by an IMF delegation, Ms Ivaschenko said. The government is committed to achieving the 3.9pc-of-GDP deficit target for 2009, and the budget bill in its current form outlines a credible strategy for continuing to reduce the deficit to reach the 3.8pc target for 2010, although there are macroeconomic and implementation risks. Hungary’s monetary policy has been appropriate so far, and important steps have been made in the are of strengthening financial regulation.
While taking into consideration uncertainty about future developments on money markets, the IMF delegation supported Hungarian officials’ request to extend the deadline for drawing down the IMF loan by six months until October 5, 2010. The new deadline would cover the period until after general elections to take place in the spring and the new government’s first steps. A final decision on the extension will take place at the end of September.
Taking into consideration Hungary’s international reserves — in part its SDR 991m (EUR 1.09bn) allocation and a recent EUR 1bn eurobond issue — the IMF supports the government’s request to call down EUR 55m of its standby loan when the review is completed, Ms Ivaschenko said. The rest of the loan can be called down in four equal parts.
The IMF is in agreement with the Hungarian government’s projection for a 6.7pc economic contraction in 2009 and a 0.9pc drop in GDP in 2010, she said.
It is an important task that the public understand the importance of the consolidation programme in order not to put at risk results achieved thus far and to keep the country on the path toward fiscal sustainability, Ms Ivaschenko said. This is important from the view of growth too, she added.