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Draft IMF report says Hungary needs bigger reserves, stability package - paper

A precautionary programme from the International Monetary Fund, prepared in the framework of a strict fiscal policy, could help ease existing tensions in Hungary by increasing reserves and introducing a package of stability measures, according to a report prepared for a meeting of the IMF board on January 18 obtained by business weekly Figyelo.

The report cites a "precautionary" programme without actually naming the programme, Figyelo said, adding that it learnt the IMF board was of the view that Hungary could get a Stand-By Agreement - which carries more conditions than a precautionary agreement - at an informal meeting in December.

Figyelo learnt the government had already received a copy of the report and could make additions. It will be published after approval by the IMF board.

The IMF would require Hungary to take steps to re-establish the independence of the National Bank of Hungary, strengthen the Fiscal Council, exercise a stricter fiscal policy, reduce and then withdraw crisis taxes, end ad hoc economic policy measures, implement planned reforms to the full extent, restructure the system of social payments, restructure public transport companies, and introduce personal bankruptcy, Figyelo said.

The report says Hungary’s political climate is "complicated" at present. It calls the chance of Hungary losing its Cohesion Fund support because of an excessive deficit procedure that has dragged on for eight years a "real danger" that would eliminate funding equivalent to 2% of GDP.

The report acknowledges the government’s ambitious fiscal goals, but adds that achieving them could be risky considering the worsening macroeconomic conditions and political derailments. The increasingly complicated tax system ought to be restructured to serve mid-term growth goals, and labour market distortions should be avoided, Figyelo said the report adds.