IMF welcomes Hungary’s strong economic performance, but calls for structural reforms

Budapest (MTI) – Executive directors of the International Monetary Fund (IMF) have praised Hungary for its continued strong economic performance but noted that the still high external and public debt levels call for rebalancing the policy mix and advancing structural reforms, in a statement issued on Friday.

The IMF encourages the authorities to pursue growth-friendly consolidation for faster deficit and debt reduction. Priority should be given to enhancing the quality of expenditure and composition of revenue while a gradual reduction in the elevated wage bill could be part of a comprehensive administrative reform to rationalize and better target subsidies.

In its statement, the IMF welcomed an improvement in tax compliance and encouraged action to further improve revenue by reducing exemptions and the number of items subject to preferential VAT rates.

The directors supported the current monetary policy stance, but highlighted the need to monitor inflationary pressures. With the economy and the banking sector improving and new lending resuming, the usual monetary policy transmission mechanisms are likely to be restored.

The fund recommended a gradual phasing out of unconventional monetary and credit policies and calls for sustained efforts to strengthen the financial sector and reduce risks, especially monitoring of risks from higher real estate prices. The statement added that enhancing the business environment by streamlining regulations and improving transparency and policy predictability remain a priority. Measures to increase female participation will also be helpful. Directors underscored that ensuring effective utilization of EU funds will be key to supporting growth.

Stronger efforts should be made to address skill-mismatches and strengthen training to improve productivity, especially of participants in the public works schemes. Encouraging participants in these schemes to move to the primary labour market is a step in the right direction.

The IMF projects 2.9 percent GDP growth for this year and 3 percent growth for next year in Hungary. Private consumption could rise by 2 percent and 1.9 percent, respectively, and average inflation could be at 2.5 percent then 3.2 percent.

Investments could increase by 18.6 percent in 2017 and 19 percent in 2018, budget deficit could be 2.6 percent of GDP then 2.5 percent of GDP in 2018. Public debt could fall from 73.1 percent this year to 71.8 percent in 2018.

The IMF’s projections are under the government’s forecasts for GDP growth of 4.1 percent in 2017 and 4.3 percent next year.

In a statement, the economy ministry welcomed the IMF report and noted the IMF’s “appreciation of the Hungarian economy’s high performance now unbroken for several years” supported by a pro-growth economic policy, efficient use of EU funds and a good external environment.

Source: MTI