EC says Hungary’s pubic finances present “medium risk”

The European Commission (EC) classified Hungary as medium risk in a report on the sustainability of public finances published on Wednesday.

Other member countries in the medium-risk group include France, Italy, Poland and Portugal.

The sustainability gaps have widened in most countries as a consequence of the economic crisis, and several countries are now in a higher, long-term risk category, the report said. While the crisis has reversed part of progress made over the past decade, the three-pronged strategy, which consists of deficit and debt reduction, increases in employment rates and reforms of social protection systems, remains valid, the Commission said.

The long-term effect of an ageing society on Hungary’s public finances is less than the EU average but the ratio of pension expenses to GDP is higher, the report said.

The Commission projects Hungary’s age-related expenditure (including pension, health and elderly care, retraining and jobless contribution) to rise to 25.7pc of GDP in 2060 from 21.6pc in 2007.

This year’s fiscal position (a projected ESA95 general government deficit at 3.9pc of GDP is sufficient to stabilise the current level of Hungary’s indebtedness but it is not enough to offset the long-term fiscal impacts of an ageing society, the report said.

The current high level of government debt, estimated at 80.8pc of GDP, also increases the risk of long-term sustainability.

Further reforms of the social security systems and high primary surpluses of the general government could further reduce the risks. Reforms should be continued without magnifying the consequences of the financial and economic crisis, the Commission said.

The riskiest 13 countries are the Czech Republic, Cyprus, Greece, Ireland, Latvia, Lithuania, Malta, the Netherlands, Romania, Slovenia, Slovakia, Spain and the UK.

The Commission saw lower risks of future social costs in the case of Austria, Belgium and Germany, and termed Bulgaria, Estonia, Denmark, Finnland and Sweden low-risk as they had completed the bulk of the necessary reforms.