Despite pledges to end bad practices, Hungarian Prime Minister Viktor Orbán remains trapped in the past, former head of Hungary’s Fiscal Council György Kopits wrote in the Wall Street Journal. Although Orbán has agreed that deficit-reducing measures are necessary, his government did not adopt “a single measure” in its first nine months to correct Hungary's structural fiscal deficit, Kopits wrote.
The nationalization of pension funds might be helpful for a symptomatic relief of the near-term budgetary gap as the funds' current revenues and assets could be used for added spending, but the long-term fiscal outlook has worsened as the government needs to pay out higher defined benefits from the traditional system than would be the case for the funded system, Kopits wrote.
The fact that Hungary has one of the most rapidly aging population worldwide makes the country's public debt problem even more serious, Kopits continued. A relatively low private saving propensity and the lowest labor force participation ratio in the EU after Malta undermine economic growth prospects. Therefore the country remains vulnerable to the financial markets, as reflected in its risk premium, the highest on non-euro sovereign paper in the Union.
According to Kopits, the solution lies in a major policy shift to structural reforms that can help restore the country's debt sustainability. Deficit-reducing measures –such as targeting welfare benefits and tightening the eligibility for public pensions – that provide incentives to work, save and invest would lead to higher growth, Kopits added.