Hungary should implement more ambitious spending cuts and scrap special industry taxes as it may breach the European Union’s budget-deficit limit next year, Bloomberg reports, citing the International Monetary Fund.
Hungary, which received a €20 billion bailout from the IMF and the EU in 2008, may have a budget gap of 3.3% of gross domestic product next year, above the bloc’s 3% limit, the IMF said yesterday in a statement. A lack of detail over “key” fiscal measures raises implementation risks, the IMF said, echoing a European Commission recommendation last week that the Cabinet should take more steps to control its finances.
Prime Minister Viktor Orbán’s government in March announced a three-year plan to cut spending, which the Cabinet estimates will result in savings of HUF 550 billion next year and HUF 900 billion in 2013 and 2014. The government is relying on revenue from extraordinary industry taxes and the effective nationalization of private pension funds to plug budget holes last year and this year.
“While the size of the package and its emphasis on expenditures are appropriate, directors saw scope for improving the nature of the measures,” the IMF said in the statement. “They recommended replacing levies on specific sectors, in particular on the banking sector, with more ambitious expenditure consolidation in areas such as civil service reform and the restructuring of public transport companies.”
Hungary’s health and pension revamps lack detail and there are implementation risks on local government changes, the IMF said, adding that much of the fiscal achievements during the economic program supported by the bailout had been “unwound” since it was terminated last year.
“The recovery from the crisis has been modest and important vulnerabilities remain,” it said.
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