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IMF mission chief suggests better fiscal policy, improved economic governance for Hungary

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Hungary needs to maintain economic stability, better design fiscal policy and improve economic governance in order to address its big debt burden and support growth, Christoph Rosenberg, IMF mission chief for Hungary, said in an interview with IMF Survey online.

Mr Rosenberg acknowledged "positive steps" Hungary has taken to maintain economic stability, noting that the structural fiscal adjustment undertaken was "large by any country’s standards". He added that monetary policy had been "appropriately tight" to prevent a further weakening of the forint.

Mr Rosenberg said Hungary’s fiscal policy should be made "less regressive and more growth friendly". He cited the design of the flat tax, together with related policies, as leading to "less than optimal" economic outcomes, additional bureaucracy and bigger burdens for the most vulnerable.

"Our concern is that all this will lead to real income losses and reduced employment opportunities for lower-skilled workers. And it will make doing business in Hungary more complicated and less attractive," he said.

He also mentioned sectoral-based crisis taxes and an early forex mortgage repayment scheme at discounted exchange rates as measures that have "negatively affected the business climate".

"Confidence has suffered in a policy environment that is perceived by many investors and consumers as unpredictable and discriminatory," Mr Rosenberg said.

Mr Rosenberg said that improving economic governance was also about increasing the predictability of policies. He called the debate over the independence of the National Bank of Hungary "the most visible example" in light of legislation that has "given the impression" the government is trying to exert influence over central bank decision making. He said the government should "do everything possible to dispel that impression by changing the law" and brining it in line with international best practices.

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