Fiscal imbalances, windfall taxes, interest rate caps, subsidized lending, and delays in the disbursement of EU funds create investor uncertainty, while a strong presence of state-owned enterprises in some key sectors, inequalities of opportunities, and lagging digitalization are holding back Hungary’s productivity, the IMF directors said in an endorsement of a staff appraisal.
“Policy uncertainty has also constrained investment, contributing to an external position stronger than implied by fundamentals,” they added.
The directors pointed to the need for a “credible” fiscal adjustment, without which deficit targets would be missed.
They said that corporate taxation could be made “more equitable” by rationalizing tax incentives and increasing the tax rate, while using additional tax revenues to eliminate windfall taxes. Windfall taxes and taxes on financial transactions “create uncertainty and undermine investment”, they added.
The directors said central bank policy rates should “remain in restrictive territory” into 2025 to allow a sustainable return to the inflation target.
They acknowledged the loosening of the monetary policy stance as “broadly appropriate so far” but said there was “limited scope” for further rate cuts in 2024 amid underlying inflation pressures, particularly for services.
