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Simor advises against spending to ensure positive trends are lasting

Although Hungary's cyclically-adjusted budget balance may be favorable right now, revenue from a pick-up in growth in the future should not be spent, in order to ensure the positive trends are lasting, National Bank of Hungary governor András Simor said at a financial summit organized by the Hungarian Business Leaders Forum.

The final goal of fiscal policy is not to bring the general government deficit to a steady 3% of GDP, but to implement the balanced budget policy in the Stability and Growth Pact, Simor said.

A sustainable fiscal policy can give more space for monetary policy to move, he said, adding room for monetary policy movement was limited in the past years as the result of fiscal policy, he said. Fiscal measures, including frequent changes to taxes and price subsidies, played a part in that the central bank could not achieve price stability in the past years nor could it dampen inflationary expectations. Monetary policy can focus on its primary goal, on price stability, with as little sacrifice to the real economy as possible, only if there is a sustainable fiscal policy.

Simor noted that a significant fiscal adjustment has been going on in Hungary since 2006. Hungary's high stock of debt still boosts, however, the financing requirement. Reducing state debt requires reducing the country's risk premium and improve the long-term growth outlook, Simor said. (MTI – Econews)