Hungary is in no crisis, but it has a problem it has “created for itself”. “But this can be fixed, and if it is not, then there will be a crisis,” said Angel Gurría, Secretary-General of the Organization for Economic Co-operation and Development (OECD) at a conference in Budapest on Friday.
“[...] the problem is a bit graver, which necessitates tougher measures, but you can do it,” Gurría said at a conference organized by think tank GKI. While he acknowledged the results of the government’s fiscal adjustment measures, he stressed that further steps would be important, as well.
“The Hungarian adjustment program is going forward and enjoys the support of monetary policy,” Gurría said, adding that inflation expectations are balanced for the medium run.
“[...] even if it is a long road, the government has stepped on the path to macroeconomic stability,” he declared, listing a number of important tasks lying ahead of the cabinet.
1) Hungary needs to remain of the fiscal adjustment course and pursue a disciplined budget policy;
2) structural reforms must be carried on, which includes:
- Parliament needs to pass the package of public finance laws so that the achievements of the adjustment scheme can be maintained;
- reform of the public sector is crucial and local governments must also assume a role in restoring budget balance (initiatives to this end are part of the public finances package);
- reform of the pension regime serves long-term interests, but Hungary must act now;
- the health care reform needs to be continued, propping up the quality of services and enhancing competition. Gurría warned against creating too high operating expenses at regional health care insurance funds;
- the labor market should be made more flexible, as the rate of employment is some 10 percentage point lower than average of OECD countries. This may be an important source of the performance of the economy, Gurría noted.
Gurría said that if Hungary kept up the reform pace it would be competitive with any EU member states even amidst growing challenges presented by China. To a question what would be the healthy split in the focus on revenue boosting and spending reduction measures, Gurría replied the country “had no choice but to take revenue boosting steps first”. He said that during a period of adjustment the results of spending cuts appear with a delay (partly due to severance payments) and are “extremely painful”. Summing up his view on Hungary’s reform scheme, Gurría said “politicians should act as gardeners rather than mechanics”, referring to the great importance of forward looking measures. (portfolio.hu)