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EC proposes termination of loan program follow-up visits

MNB

The European Commission (EC) proposed yesterday to wind up follow-up visits in connection with the loan program between the European Union and Hungary that ran parallel to the International Monetary Fund credit initiated in 2008, Hungarian news agency MTI said yesterday.

Hungary drew a total of €5.5 bln from the EU in 2008-2009 and repaid more than 70% of the loan by last November. The last €1.5 bln tranche is due in the second quarter of 2016. On-site visits have been taking place regularly since the end of 2010.

In a report on the last follow-up visit, which took place in November 2014, EC experts concluded that the state of the economy no longer necessitated further such visits. While acknowledging the achievements, the report noted continued weak growth potential and vulnerability of the banking system.

They said that the financing of Hungary's general government is safely based and the budget responds well to global impacts. The liquidity reserves and international reserves provide a sufficient buffer against eventual disturbances on global markets.

The Hungarian economy grows rapidly, thanks in part to a set of one-off measures and incentives, but the general picture has also improved, the report said, adding that domestic demand is the main engine for growth.

Hungary's growth potential is still poor relative to other countries in the region, and is weakened by low growth in productivity, which is partially the result of narrow financial resources.

The Hungarian banking system continues to be vulnerable. Last year the banks faced operational problems partly due to the tax burden which is the highest in the EU and partly because of the increasing volume of bad and restructured debt weighing on their balances.

The report acknowledged, however, that employment exceeds the pre-crisis levels, inflation has been pushed down, the current account has been in surplus and the fiscal deficit has been below 3% for years.

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