The review, conducted in close cooperation with the IMF, noted a number of open questions on which the government would need more time to provide clarification. It was decided to postpone the conclusion of the review and that it would be appropriate to return for further discussions at a later stage.
05/08/2010
The European Commission services, in close cooperation with the International Monetary Fund staff, conducted the fifth review under the EU balance of payments assistance to Hungary between 6-17 July.
Useful discussions were held on the new government's economic policy intentions for 2010 and beyond. The mission welcomed the government's commitment to the agreed budget deficit target of 3.8% of GDP for 2010.
Fiscal consolidation
The mission recognised that following the budgetary slippage in the first half of this year, a number of steps were taken to correct the situation, including sizeable revenue-enhancing and expenditure-saving measures. However, the corrective measures considered so far fall somewhat short of the required adjustment and are largely of a temporary nature. Hence, the government has to make increased efforts to bring the deficit below 3% of GDP, on a sustainable basis, in 2011.
Open questions
While noting that the financial sector levy which has since been enacted would help in meeting short-term budgetary commitments, the Commission services considered that the levy in its current form could have a significantly negative impact on the country’s investment climate and economic growth. The mission urged the authorities to review some features of the levy in this regard.
Several draft laws that have since been passed by Parliament may potentially not be in compliance with EU law.
Next steps
The Commission services, together with the IMF, stand ready to resume the
talks whenever the authorities consider that this would be
productive.
Background
The EU medium-term financial assistance to Hungary was decided in November 2008. Hungary received three instalments of the EU €6.5 billion balance of payments loan: two instalments of €2 billion each on 9 December 2008 and 26 March 2009 and a further €1.5 billion on 6 July 2009 so far. In view of the improved access to market financing, Hungary did not draw on EU and IMF assistance upon the completion of the reviews in November 2009 and February 2010. The EU assistance was granted for a period of two years until 3 November 2010.
>> Press release IP/10/964: Commission postpones conclusion of fifth review on the EU's balance of payments assistance to Hungary.
>> 15/02/2010 European Commission concluded its fourth review of the EU medium-term financial assistance to Hungary