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Hungary: Simor on looming base rate hike

András Simor, governor of the Hungarian central bank (MNB), sees raising the forint base rate increasingly inevitable, considering worse-than-expected inflation, rising international interest rates and significant deterioration in the prospects for domestic growth.

In his Saturday article in the daily Népszabadság, Simor called for a solution to long-term growth problems in Hungary. The economy is resuming a path of growth slower than expected: beside unsustainable budget expenses, the investment rate was also much lower since 2000 than in the previous period or in the neighboring countries. Although employment is one of the lowest in Europe, nothing happened to improve the situation, and productivity growth is falling continuously. Innovation efficiency is low, while ineffective administration and the corruption-generating political party financing distort economic incentives, wrote Simon.

The budget expenses reach 50% of GDP, which is much higher than in other Visegrád countries, due mainly to extreme welfare costs and high public dept expenses. As solutions, a cut of expenditure by Ft 2,000–2,500 billion is needed, the Cenbank governor argues, to be able to decrease the existing over-taxation in the economy. The abolishing of minimum-wage regulations is also to be considered, while the system of social benefits should be changed in a way to force beneficiaries back to work. Hungary will either remain a country depending on constant state provision and lag behind, or a country that learns self-provision, market economy, responsibility and risk taking, and catches up to Visegrád countries, stated Simor. (Napi Gazdaság, Gazdasági Rádió)