In a report published prior to the announcement of the package, expected on Tuesday, Morgan Stanley said that such reforms could turn perception of Hungarian fiscal fundamentals around, if they are comprehensive and clearly communicated.
“More importantly”, a composition “heavily tilted” towards expenditure cuts rather than revenue increases would be a positive. Also, clear targets on individual expenditure items rather than “general statements of intent”, such as cutting local government waste are also necessary, Morgan Stanley said.
However, “we sense that, judging from our recent conversations with investors, most of them have remained agnostic or sceptical on the government’s ability to pass these reforms”, it added.
At present, the estimated size is around HUF 700 billion, with one-third of measures coming from the revenue side and the rest from expenditure cuts such as pensions, drug subsidies and unemployment benefits. “If these measures were implemented and were credible, we believe that they would probably halt the slide in ratings, and could even reverse it, and would put debt/GDP ratios on a much more sustainable path”, Morgan Stanley said.
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