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MNB expands research staff to analyze budget, state debt, fiscal incentives

The National Bank of Hungary (MNB) has expanded its research staff as it plans to extend its capacity to analyze in three new areas, including the forecast of the expenditure side of the budget, MNB director responsible for economic analyses Agnes Csermely said in an interview published in Monday's issue of business daily Napi Gazdasag.

The MNB also plans to develop a set of analytical tools to forecast changes of implicit long-term state debt related to the pension system, Csermely said. It will prepare estimates on how fiscal incentives -- such as the changes to the personal income tax regime or the planned tightening of social transfers under the government's Structural Reform Program, dubbed the Szell Kalman Plan -- could affect the economy's growth potential, she added.

The MNB has hired seven researchers formerly employed by the Fiscal Council, Csermely said.

The Fiscal Council, an independent body established to assess fiscal policy by Hungary's previous government, lost its entire staff and nearly all of its budget as the result of amendments to legislation approved in December. The changes also replaced the Fiscal Council's members with the central bank governor, the head of the State Audit Office and an independent economist appointed by the President. (The President picked MNB supervisory board chairman Zsigmond Jarai for the spot in February.) MNB governor Andras Simor said at the time that the change could force the central bank to hire more analysts as the Fiscal Council's staff of about 40 had carried out a much deeper analysis of budget matters than the MNB staff.

Speaking about a government initiative to cap Hungary's state debt as a percentage of GDP at 50% in the new constitution, well under the 60% Maastricht criterion, Csermely said the lower limit was appropriate because Hungary is less developed. It is important to establish rules for the interim period and regulations that allow sufficient room for maneuver in case of another recession or banking crisis, she added.

Hungary's gross debt, under Maastricht rules, reached 80.2% of GDP at the end of 2010.

Hungary already has a set of rules on state debt in the Fiscal Responsibility Act, Csermely pointed out. The rules are better than those being planned now in terms of flexibility, but they are complicated and based on the unclear concept of real-term debt, she added.

Csermely suggested regulations on state debt should define limits for budget-funded institutions for the long run, thus encouraging them to operate more rationally.