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Hungary's Finances Remain Bolstered By IMF Stand-By Arrangement

by Ulrika Lomas,, Brussels

28 December 2009

On the conclusion of its fourth review of Hungary under the Stand-By Arrangement, an International Monetary Fund (IMF) mission welcomed the Hungarian government’s progress on fiscal reform, and noted its decision to not withdraw the funds allocated under the arrangement due to its improving financial position.

IMF total disbursements to Hungary amount to USD12.11bn, but would have increased by a further USD1.15bn if the government had accessed the funds it was offered.

John Lipsky of the IMF Executive Board observed that: “Consistent implementation of economic policies in line with the program over the past year has contributed to an improvement in Hungary’s external financing conditions. Reflecting this improvement, the authorities do not intend to draw the amount that would be made available upon completion of this review."

"The program continues to focus on improving fiscal sustainability and preserving financial stability, providing the basis for strong, sustainable growth over the medium term.”

He continued: “Fiscal sustainability has been strengthened through structural spending reforms to the pension system, social transfers, and subsidies. The increase in the fiscal deficit in 2009 helped avoid exacerbating the economic contraction."

"At the same time, tax reform is shifting the tax burden from labor to consumption and wealth, which should boost labor participation and potential growth over the medium term. To put government debt as a share of GDP firmly on a declining path, strict expenditure control will be needed in 2010, and further measures will be required in 2011 to bring the fiscal deficit below 3% of GDP."

“Increased confidence in fiscal sustainability has better anchored market expectations and helped to create room for cautious interest rate cuts. Looking ahead, monetary and exchange rate policy will continue to target inflation over the medium term, while taking into account risks to financial stability,” the IMF official concluded.

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