Hungary’s government has taken sufficient measures to stabilise the economy, but a strict fiscal policy as well as maintaining risk reserves is still necessary, and further measures must be taken in 2011 to bring the general government deficit under 3pc of GDP, IMF delegation head James Morsink said on Monday, after a review of Hungary’s progress meeting the conditions of a EUR 20bn financial support package from the IMF, EU and World Bank granted in November 2008, after the country’s bond market locked up.
Further measures are required to reduce Hungary’s state debt from over 80pc of GDP to 65pc in the next five years, Mr Morsink said.
Hungary’s main opposition party Fidesz has expressed its readiness and intention to continue a strict fiscal policy in talks with the IMF, Mr Morsink said, answering a question. Politicians from the Opposition have confirmed the cooperation with the IMF is important and they wish to continue this cooperation, he added.
Fidesz is tipped to win general elections in the spring based on polls.
Hungary is progressing in the right direction toward a pickup, supported not by domestic consumption but based on external demand, Mr Morsink said. The IMF projects Hungary’s economy will contract by 0.2pc in 2010, but expects growth of more than 3pc in 2011.
The Hungarian economy has stabilised and is moving along the right path but due to major budget risks this year’s deficit target can only be achieved with a strict budget policy and it might also be necessary to restructure reserves, head of the European Commission’s delegation Barbara Kaufmann said.
Hungarian Finance Minister Peter Oszko reiterated that the government does not want to draw down another tranche of the financial support package as the country can get financing on the market.
Mr Oszko said that last year’s 3.9pc- and this year’s 3.8pc-of-GDP general government deficit targets seem achievable, but he acknowledged that further disciplined fiscal policy is required. Even though the 75pc of the full-year deficit for 2010 will be reached as early as the first quarter, the government will freeze the HUF 170bn of risk reserves, ensuring the full-year target is met. Risk will be reduced by some HUF 60bn in general government revenue from private pension fund members returning to the state pension system and by about HUF 50bn because of lower interest rates.
He said the government’s projection for GDP this year was changed to minus 0.2pc, a slight improvement over a projection of minus 0.3pc made a month earlier. In January the government had projected a 0.6pc drop in GDP for 2010.
National Bank of Hungary governor Andras Simor said steps Hungary had promised the IMF it would take to strengthen financial market regulator PSZAF had all been completed.
The IMF’s representative in Hungary Iryna Ivaschenko acknowledged the steps to strengthen the independence of PSZAF. Hungary’s banking system is stable and remains profitable, and banks’ parents in the West have confirmed their commitments to units in Hungary, she added.
The capital adequacy ratio of Hungary’s bank system was almost 10pc in 2009, preliminary data show, just slightly under the level in 2008, Mr Simor said.
Of the EUR 12.3bn IMF stand-by loan, Hungary drew down EUR 4.9bn in November 2008, upon the approval of the package. It drew down EUR 2.3bn in March 2009, EUR 1.4bn in June 2009 and a slight EUR 55m in September 2009. The country has made no further draw-downs since the last review carried out in December 2009.
Of EUR 6.5bn from the EU, Hungary drew down EUR 2bn in December 2008, another EUR 2bn in March 2009 and EUR 1.5bn in July 2009.
Hungary may still call down EUR 5.7bn of the IMF, EU and World Bank package until October 5, 2010.
The quarterly review wound up on Monday was the fifth by the IMF and the fourth by the European Union.