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Hungary needs fundamental changes to reach fiscal goals-3, says IMF

On monetary policy, Lipsky said that monetary policy authorities need to play a supportive role in the process of establishing long-term credibility in the country's fiscal and monetary policy framework.

„The IMF recommends the inflation targeting system (which Hungary uses), which sets a clear goal, and allows authorities to use the tools at their disposal to ensure that this goal is met,” Lipsky. „Other countries that have similar fundamentals as Hungary, have had success with the combination of inflation targeting and a flexible exchange rate system...I believe that a flexible exchange rate system is the way forward for Hungary,” Lipsky said.

The IMF has repeatedly recommended that Hungary abandon the forint's trading band against the euro. „A flexible exchange rate could mean a challenge when Hungary wants to join the euro zone but that's not an immediate concern,” Lipsky added. The executive urged caution against plans to reduce Hungarian tax rates significantly. „The excessive complexity of the tax system breeds evasion and a tendency to look for tax favors and simplification is necessary but I would urge against significant tax cuts,” Lipsky said.

He added that the IMF would welcome the introduction of a broad-based property tax as planned by the government. Overall, the simplification of the tax system, the broadening of the tax base and the gradual easing of taxes levied on labor are necessary measures, Lipsky said. „Tax labor and you'll get less labor relative to other things; so the medium-term goal seems clear,” Lipsky said. (fxstreet.com)