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Hungary government determined to see through reforms, risks persist, say City

Hungary's government "appears determined" to push through most of its reform program but substantial implementation risks remain, London-based analysts said on Tuesday.

In a research note based on a recent visit to Budapest and meetings with officials at the IMF, the Ministry of National Economy and ÁKK, Royal Bank of Scotland's senior emerging markets analyst Timothy Ash said that the government's reform package is "ambitious" but, if successfully implemented, offers the prospect of transforming the outlook for the Hungarian economy.

There are, however, substantial risks, particularly on the implementation front, and some concern also remains as to whether the growth assumptions underpinning the programme - particularly in the short term - are realistic.

But the danger is that the shear extent of the programme could "shock" large sections of the economy and the population and weigh on growth. This could challenge fiscal targets and force some aspects of the programme to be revised, for example plans for tax cuts may need to be scaled back.

Still, "we would commend the government for being one of the few administrations in the region to focus on the need to identify new drivers for growth in the post-Lehman period", Ash said.

What is encouraging in Hungary's case and "stands in some stark contrast to the likes of Greece, Portugal, et al", is that Hungary has a track record of reform, including the Bokros reform programme from the mid-1990s. Its problem historically, though, is that reforms have tended not to be sustained over the longer term, with stop-go reform cycles, ending in periodic crises, he added.