The IMF on Tuesday underlined the importance of limiting Hungary’s budget deficit to 3.9 percent of gross domestic product this year and 3.8 percent in 2010.
The adoption of a budget consistent with this target will be a condition for completion of the next review, the IMF experts said.
The draft budget for 2010 is consistent with the spending cuts needed to reduce the budget deficit to 3.8 percent of GDP, it added.
Hungary’s economic outlook has stabilised since the IMF’s last review, reflecting in part the stabilisation of the global outlook, and showing macroeconomic and financial policies are on track, the IMF said on Tuesday in its third review after approving a stand-by arrangement for Hungary a year earlier.
To help put government debt as a share of GDP firmly on a declining path over the medium term, the authorities are implementing comprehensive structural reforms aimed at permanently reducing government spending and bolstering potential GDP growth, the IMF experts said in the review carried out and approved by the IMF board in September and published on Tuesday.
Policies to underpin financial stability are being strengthened, including by enhancing the capability to carry out on-site bank inspections, they said. Institutional arrangements will be reformed to improve the supervisory agency’s independence and to give the central bank the authority to issue temporary regulations on systemic macro-prudential issues.
The combination of improved global financial conditions and increased confidence in fiscal sustainability has created room for cautious interest rate cuts, the experts added.
In the third review, the IMF forecast a 6.7 percent GDP contraction this year and a 0.9 percent shrinkage next year, in line with the official government projections. Year-end consumer price inflation is likely to be 6.1 percent and 2.4 percent in 2009 and 2010 respectively, the IMF said.