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IMF Country Report No. 19/357
HUNGARY
2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR HUNGARY
December 2019
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 2019 Article IV consultation with Hungary, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its November 27, 2019 consideration of the staff report that concluded the Article IV consultation with Hungary.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on November 27, 2019, following discussions that ended on October 3, 2019, 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 November 12, 2019.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Hungary.
The documents listed below have been or will be separately released.
Selected Issues
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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© 2019 International Monetary Fund
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HUNGARY
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
November 12, 2019
Key Issues
Context: In an increasingly uncertain global economic environment, Hungary’s growth registered one of the highest rates in Europe in 2018. The economy now appears to be running above capacity and wages are growing rapidly amid historically low unemployment It is thus likely that growth will slow down over the medium-term. Supply-side reforms can help sustain the momentum.
Policy recommendations. Policies have reduced vulnerabilities substantially, however, measures to support the targeted fiscal consolidation could be more ambitious to ensure that room for fiscal policy maneuver is rebuilt. Wages outstripping labor productivity growth, slower export growth, and shortcomings in the business environment for SMEs call for invigorating structural reform efforts.
Fiscal policy: It will be important to achieve the government’s medium-term fiscal targets to help alleviate demand pressures and increase the available fiscal space that can be used in future downturns. Specific growth-friendly measures are needed to meet the authorities’ consolidation plans. Emphasis should be on improving the structure of revenue and expenditure.
Monetary policy and the financial sector: Monetary policy can afford to stay on hold in the near term given the ongoing easing by major central banks, and the still weak external outlook and downside risks but should continue to be attentive to domestic demand pressures. Close monitoring of the housing market is warranted, and consideration should be given to scaling down existing incentives that stimulate demand.
Structural agenda: Improvements in competitiveness are needed to sustain rapid income convergence and address demographic challenges. The government’s competitiveness program contains important elements. Focus should be on improving the business environment (especially for SMEs), enhancing the legal and regulatory framework, and increasing labor force participation.
Approved By
Jorg Decressin (EUR) and Martin Sommer (SPR)
Discussions took place in Budapest during September 24–October 3, 2019. Staff team comprised Messrs. Sakr (head), Lybek, and Dybczak, and Ms. Vtyurina (all EUR). Mr. Benk attended most of the meetings and Mr. Kaya joined the concluding meetings (all OED). Mses. Batog, Samuel and Mr. Park (all EUR) assisted in the preparations of the staff report. The staff met with the State Secretaries of the Ministry of Finance Messrs. Banai, Gion, and Rákossy, Central Bank Deputy Governors Messrs. Nagy, Kandrács, and Patai, other senior officials, and representatives from the private sector, employers’ associations, and think tanks.
Contents
CONTEXT
BACKGROUND AND RECENT DEVELOPMENTS: GOING STRONG
OUTLOOK AND RISKS: A BALANCING ACT
POLICY AGENDA
A. Fiscal Policy: Creating Space While Enhancing Quality
B. Monetary Policy: Staying Tuned to the Challenges
C. Financial Sector: Harnessing Stability
D. Structural Reforms: It’s Go Time
STAFF APPRAISAL
BOXES
1. Global Automotive Industry: Hungary’s Participation and Prospects
2. Public Works Scheme
FIGURES
1. Real PPP GDP per Capita Growth
2. Real and Fiscal Sector Developments
3. Financial Sector and Housing Indicators
4. External Sector Developments
5. Adjustment Scenario and Measures
6. General Government Wage Bill and Employment
7. Competitiveness, Doing Business and Governance Indicators
8. Automotive Sector Statistics
TABLES
1. Selected Economic Indicators, 201420
2. Medium-Term Scenario, 2014–24
3. Consolidated General Government, 2014–24
4. Central Bank Survey, 2014–20
5. Monetary Survey, 2014–20
6. Balance of Payments, 2014–24
7. Financial Soundness Indicators for the Banking Sector, 2014–19
ANNEXES
I. Public and External Debt Sustainability Analysis
II. External Sector Assessment
III. Risk Assessment Matrix (RAM)
IV. Response to Past Fund Policy Advice
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HUNGARY
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
November 12, 2019
Prepared By
European Department
In Consultation with Other Departments
Contents
FUND RELATIONS
STATISTICAL ISSUES
Front Matter Page
Press Release No. 19/442
FOR IMMEDIATE RELEASE
December 5, 2019
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