IMF says Hungary needs 'different' policy for growth
Increased state interference and "frequent and unpredictable" changes
in policy by the government of Prime Minister Viktor Orban are
undermining confidence in Hungary, hurting the investment climate and
hindering growth, the IMF warned Friday.
In its annual report on Hungary, the Washington-based International
Monetary Fund noted that investment levels were at a 10-year low.
The economy meanwhile contracted by 1.7 percent of gross domestic
product in 2012 and was expected to remain "broadly flat" in 2013.
"Weak growth in recent years has been due to an adverse external
environment, structural factors,such as the ongoing balance sheet
adjustment in the economy, and policy missteps by the government,"
Thanos Arvanitis, the IMF's mission chief for Hungary, said in the
report.
"Hungary needs a different mix of policies to jump start growth and
increase employment," he added.
The IMF cited the poor investment climate as one of the factors that
would keep medium-term growth low.
"A more business friendly set of policies is key to revive the
economy," it concluded.
Higher growth would also contribute to lowering public debt, which
currently stands at about 80 percent of GDP, making the country
"vulnerable to financial market volatility," the report said.
The IMF welcomed the government's efforts to keep deficits below 3.0
percent, but criticised that "recent fiscal consolidation has relied
excessively on controversial tax measures," affecting the banking,
telecom, electricity, and retail sectors.
"Fiscal policy must refocus on quality," it urged.
After eight straight months of interest rate cuts by Hungary's
central bank, which have brought the base rate down to 5.0 percent from
7.0 in July, the IMF also encouraged it to "pause for now." "Policy rate
cuts cannot substitute for other policies to jump-start growth," it
said.
"Ensuring the legal and operational independence of the central bank
would be of paramount importance for the credibility of the inflation
targeting regime," the IMF added, in a veiled reference to the recent
controversial change of leadership at the bank.
Earlier this month, former economy minister Gyorgy Matolcsy, a loyal
ally of Orban, took over as governor, stoking concerns over the bank's
independence. |