Matolcsy chides gov't for investing in brick and mortar, not brains


György Matolcsy

National Bank of Hungary (MNB) governor György Matolcsy on Monday said state investments behind the 5.9%-of-GDP budget deficit target for next year are "unsound and unsustainable on a number of counts" as they focus on "steel and concrete" investments rather than "smart" ones in "capabilities, institutions and brains", according to a report by state news wire MTI.

In a weekly op-ed piece published on the website of daily Magyar Nemzet, Matolcsy noted the impact of state investment volume equivalent to 7.1% of GDP on the 2022 budget gap and pointed out that three-fourths of state-investments are construction investments, contrasting that with the relatively low rate of "smart" investments necessary for knowledge-intensive growth.

He said that relatively high investment rates in 2019 and 2020 were in part due to an increase in investment prices and warned that state construction investments amid tight capacity in the sector could drive prices higher and exacerbate imported inflation.

"All sources of growth are important, but the most important source of sustainable convergence is really the expansion of productivity. That can be increased the fastest with digital investments. If the rate of digital investments is low and the rate of construction investments high, the sources of boosting productivity will be narrow. Unfortunately, that is the case [in Hungary]" he said.


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