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IMF rep in Hungary says impending structural reforms appear promising

The direction of the Hungarian government's structural budgetary reform program to be announced in February appears to be promising, though more details are needed before a full assessment can be made, International Monetary Fund (IMF) Resident Representative in Hungary Iryna Ivaschenko told the political daily Magyar Nemzet in an interview published on Monday.

Prime Minister Viktor Orbán said in a recent interview with Dow Jones Newswires that the government will discuss a long-term fiscal revamp including spending cuts, a review of the pension system, the reduction of unemployment benefits, drug subsidies and reform the costly public-transport system, on February 15.

The IMF has expressed concern with regard to the government's restructuring of Hungary's private pension-funds system because of the impact of the step on the sustainability of the budget and its increase of the government's long-term pension commitments, Ivaschenko told the daily. The government plans to spend part of these assets on current expenditure which means borrowing from future generations. Spending it on a one-off debt reduction is a better option, but additional structural measures are needed to make the debt reduction a continuous process, the IMF representative said.

Based on the 3.2%-to-GDP cashflow central government deficit figure, Hungary will manage to meet its targeted accrual-based 2010 general government budget deficit of 3.8% of GDP, Ivaschenko said. It is important to examine the sustainability of the measures taken to reduce the deficit, she said.

With regard to the Prime Minister's recent announcement that Hungary would repay the unused portion of its 2008 IMF loan, Ivaschenko said that Hungary as any country could make advance repayments on the loan free of any penalty rate or obstacle. It is important to examine, however, the effect of the repayment on the level of international reserves, on debt service and the country's long-term financing plans when making such a decision, she added. (MTI-Econews)