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IMF program a success but challenges remain

The IMF program has been a success in stabilizing Hungarian asset markets and facilitating fiscal reforms, but another €10 billion in additional IMF funds would provide a “safety net” to cushion Hungary's economy from remaining challenges, London-based emerging markets analysts said.

In its emerging markets quarterly report released to investors in London, Barclays Capital said that the IMF-EU program has “worked well thus far.” It provides ample funds and can be used for a variety of purposes: fiscal financing, bond buy-backs, providing support for locally owned banks and FX intervention when needed.

In return, the government delivered on structural fiscal reforms, including a shift in taxation from labor to consumption taxes and a reduction of subsidies. Combined with the improved global environment, this has improved financial stability in Hungary over recent months, Barclays Capital said. However, it is unlikely that financial stability concerns will abate soon.

The challenges in the banking sector are far from over. Non-performing loans continue to rise (albeit from low levels, still below 3% in end-2008) and, as provisioning increases, recapitalization needs could arise. (MTI - Econews)