Front Matter Page
IMF Country Report No. 15/92
HUNGARY
2015 ARTICLE IV CONSULTATION—STAFF REPORT; PRESS RELEASE; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR HUNGARY
April 2015
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2015 Article IV consultation with Hungary, the following documents have been released and are included in this package:
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on March 27, 2015, following discussions that ended on January 30, 2015, with the officials of Hungary on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on March 11, 2015.
An Informational Annex prepared by the IMF.
A Staff Statement of March 27, 2015 updating information on recent developments.
A Press Release summarizing the views of the Executive Board as expressed during its March 27, 2015 consideration of the staff report that concluded the Article IV consultation with Hungary.
A Statement by the Executive Director for Hungary.
The document listed below has been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623-7430 • Fax: (202) 623-7201
E-mail: publications@imf.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
© 2015 International Monetary Fund
Front Matter Page
HUNGARY
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION
March 11, 2015
Key Issues
Context. The economy is recovering steadily helped by supportive macroeconomic policies and improved market sentiment There has been a welcome decline in vulnerabilities but debt levels remain elevated, leaving the economy prone to shocks, and medium-term growth prospects appear subdued. The government took steps to address these challenges, but the overall strategy relies on measures that increase the role of the state in the economy and shift the burden of the adjustment to specific sectors. This may deter private domestic and foreign direct investment.
Policy recommendations. Policies should aim at further reducing vulnerabilities and comprehensively tackling impediments to strong, private sector-led growth.
Fiscal policy. Adopt a growth-friendly fiscal consolidation strategy to rebuild room for policy maneuver and sustainably reduce the public debt ratio. The strategy should rely on durable expenditure retrenchment, improved efficiency of spending, and a simplification of the tax system, including a gradual elimination of distortionary sectoral taxes.
Monetary policy. Monetary policy needs to guard against building disinflationary pressures. Adequate reserves are necessary to support financial stability.
Financial sector. Strengthen efforts (and follow up on recently-announced commitments) to repair financial intermediation by improving the operating environment for banks. Steps should include facilitating faster cleanup of bank portfolios and reducing the tax burden on banks. The Funding for Growth Scheme should remain targeted and time bound; while the role of the state in the banking sector should be contained.
Structural reforms. Increase policy predictability and reduce state interference in the economy to help strengthen confidence and support private investment. Adopt policies to enhance labor participation, particularly among women and older workers; improve the business environment; and enhance competitiveness.
Approved By
Jörg Decressin (EUR) and Mark Flanagan (SPR)
Discussions took place in Budapest during January 21–30, 2015. The staff team comprised Messrs. Christou (Head) and Klein, Mses. El-Ganainy (all EUR), Jenkner (FAD), and Sanya (SPR); and was joined by Mr. Roaf (senior regional resident representative, EUR) for a few days. Mr. Benk (OED) attended most meetings. Ms. Samuel and Mr. Scutaru (both EUR) assisted in the preparation of the staff report. The staff team met with State Secretaries of the Ministry for National Economy Orban and Banai, State Secretary for Energy Affairs of the Ministry for National Development Aradszki, Central Bank of Hungary (MNB) Deputy Governor Balog, other senior officials, and representatives from the private sector and think tanks. A workshop was held in Budapest during the mission jointly with the MNB and the Ministry for National Economy to discuss background papers prepared by staff (included in the Selected Issues Paper (SIP) accompanying this report) and the authorities. Hungary is an Article VIII country (Informational Annex: Fund Relations). Data provision is adequate for surveillance (Informational Annex: Statistical Issues).
Contents
CONTEXT
BACKGROUND AND RECENT DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Fiscal Policy
B. Monetary Policy
C. Financial Sector
D. Structural Policies
STAFF APPRAISAL
BOXES
1. Response to Past Fund Policy Advice
2. External Sustainability and Competitiveness
3. Efficiency of Public Spending on Health and Education
4. Gender Gaps in the Labor Market
5. Internationalization of Small and Medium Sized Enterprises (SMEs)
FIGURES
1. Hungary and Peers
2. Real Sector
3. Banking Sector
4. Fiscal Sector
5. Inflation and Monetary Policy
6. External Vulnerabilities
TABLES
1. Selected Economic Indicators, 2010–17
2. Medium-Term Scenario, 2010–20
3. Consolidated General Government, 2010–17
4. Central Government Financing, 2010–17
5a. General Government Operations (GFSM presentation), 2009–17
5b. General Government Stock Positions, 2010–15
6. Balance Sheet of the Central Bank, 2010–2016
7. Monetary Survey, 2010–16
8. Financial Soundness Indicators for the Banking Sector, 2010–14
9. Balance of Payments, 2010–20
10. External Financing Needs, 2011–2020
APPENDICES
I. Recent Legislation Affecting Household Debt
II. Hungary: Debt Sustainability Analysis
Front Matter Page
HUNGARY
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
March 11, 2015
Prepared By
European Department
(In Consultation with Other Departments)
Contents
FUND RELATIONS
STATISTICAL ISSUES
Front Matter Page
Press Release No. 15/156
FOR IMMEDIATE RELEASE
April 3, 2015
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Washington, D.C. 20431
Telephone 202-623-7100
Fax 202-623-6772
