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„Hungary Needs Sustainable Reforms“

Published: February 5, 2013; 15:06 · (Vindobona)

The IMF underline that the country must restore the confidence of international investors. At the moment, Hungary´s government is not forced to continue the talks with IMF.

„Hungary Needs Sustainable Reforms“ / Picture: © Vindobona.org

IMF is in doubt whether the country is able to reduce the public debt level sustainable. In order to reach its austerity targets, Hungary must introduce “sustainable reforms”, the EU Commission and the IMF said. This year, Hungary wants to reach a budget deficit below 3.0% of GDP. At the moment, Hungary´s public debt level comes at 78% of GDP. Due to the revaluation of the forint, the debt-to-GDP quota was down by two percentage points last year. Nevertheless, a further reduction is not possible, IMF underlines.

Hungary´s government assured that the austerity measures are well sustainable. This year, the budget deficit will not exceed 3.0% of GDP, the government assures. However, the EU Commission and the IMF demonstrate skepticism. According to IMF, the government will achieve its austerity targets neither in 2013 nor in 2014. The Commission fears that the deficit grows to 3.5% next year.

In the last years, Hungary has violated the Maastricht Criteria several times. Hungary´s chief negotiatior with the IMF Mihaly Varga is optimistic that the EU Commission will repeal the the deficit procedures. Varga underlined that Hungary´s employment situation has improved and the economic growth is recovering.

According to a report issued by the IMF delegation in Hungary, the government´s economic policy is unpredictable. Above all, IMF criticized the extraordinary taxes for banks, telecommunication operators and big trading groups. “In order to protect the own citizens, the government has imposed extraordinary taxes on multinational companies and banks.” As a result, the relation between the Hungarian government and the IMF remains difficult. In January, the IMF has stopped the talks for the time being. Prime Minister Viktor Orban already said that Hungary´s government and the IMF will not reach a common solution.

The financially stricken country seeks for an IMF loan for more than a year. The size of the loan comes at € 15bn to € 20bn. Hungary has applied for a precautionary credit line. In case of a financial crisis, IMF would grant a credit. Moreover, the financial institution would not require economic reforms. However, the IMF refuses grant a precautionary credit line and Hungary rejects to receive a loan. In case of a loan, the IMF could exercise more pressure on Hungary.

Also in Hungary, economists thank that the country does not need the IMF. In the last months, the interest rate on sovereign bonds has decreased substantially. In January 2011, the interest level has almost reached 10%. At the moment, the average yield for medium-term bonds comes at 5%. “Hungary does not need help from the outside.” Gergely Suppan at Takarekbank says.

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