Hungary has made good progress in its economic programme, and the country is not requesting the release of international assistance as its access to market finance improved markedly and external financing needs strongly reduced, the European Commission (EC) said in a statement on Monday. It warned that the budget must be rigorously implemented to meet the deficit targets for 2010 and 2011.
The statement was issued after an EC mission completed of the third review under the EU balance of payments assistance, in close cooperation with the International Monetary Fund staff.
“In view of the improved access to financing, Hungary will not draw on the EU and IMF assistance upon the completion of the current review. However, as is the case of the IMF loan, the outstanding amount of EU assistance (of up to EUR 1bn) will remain available, and could be disbursed if needs arise, as usual subject to policy conditionality. The EU assistance has been granted for a period of 2 years which will end on November 3, 2010.”
So far, Hungary received three instalments of the EU’s EUR 6.5bn balance of payments loan: two instalments of EUR 2bn each on December 9, 2008 and on March 26, 2009 and a further EUR 1.5bn on July 6.
“Hungary has achieved good progress in containing public spending through numerous measures, which have supported the strong adjustment of the external imbalance, increased investor confidence, and contributed to a substantially improved access to market financing”, Commissioner Almunia said. “The fiscal consolidation has to be continued in order to further strengthen the sustainability of Hungary’s public finances, put public debt on a declining path, and create the necessary room for more growth-oriented policies.”
The EC statement said Hungary has been on track in fulfilling its obligations under the loan, and has taken additional measures when it was needed. The government has made important progress towards addressing both immediate problems in relation to the crisis, as well as tackling long-standing structural issues. The fiscal consolidation has continued in 2009 and has led to an improvement in the structural balance of around 2.75pc of GDP, on top of the important adjustment achieved in the previous two years. Measures on the expenditure side included savings in the pension and housing subsidy systems.
The Commission noted that Hungary has made a very substantial improvement in long-run fiscal sustainability since the previous report of 2006.
The macroeconomic outlook for 2010 has improved slightly reflecting a better outlook for the euro area.
In order to achieve the deficit target of 3.8pc of GDP in 2010 and correct the excessive deficit in 2011, respectively, a rigorous implementation of the budget, in line with the new fiscal framework, will be indispensible. At the same time, the authorities will need to take steps to rebuild budgetary reserves in case of adverse developments. The financing needs generated by some loss-making public enterprises will also need to be addressed. Finally, building on the steps already taken, the planned reinforcement of the financial sector supervision and improvement of the regulatory environment will further enhance the stability of this sector.
The Commission services will continue to monitor the situation in Hungary and will conduct additional reviews in the course of next year. This is not only important in the context of the current international support package of EUR 20 billion, but also in the light of EU surveillance and the excessive deficit procedure under the Stability and Growth Pact, the EC statement said.