National Bank of Hungary (MNB) governor András Simor on Thursday said Hungary's new Fiscal Council can still operate although its independence is not in line with best practices.
Hungary's constitution gives the Fiscal Council licenses that are extraordinarily strong, such that stronger ones are harder to imagine, Simor said at a conference organized by the State Audit Office (ÁSZ). The body's independence should not only mean independence from other state organizations, but independence from the council's other members too, he said. "This situation does not exist: ASZ checks the MNB, the chairman of the council is also the chairman of the MNB supervisory board, who also checks the central bank. ÁSZ also has the power to audit the MNB supervisory board. This is not in line with the best international practices, but the council can still operate well," he added.
Legislation amended earlier stripped the Fiscal Council of nearly all of its budget and its entire staff. The Fiscal Council's membership was also changed to include the National Bank of Hungary governor, the head of the State Audit Office and an independent economist appointed by the President of the Republic. MNB supervisory board chairman Zsigmond Járai was appointed to the latter post in February.
Earlier, the council was made up of three independent economists.
A drop in the country's risk premium, an improvement in the outlook for incomes and a pick-up in the bank sector are necessary to kick-start growth, Simor said.
"The outlook for growth is improving only slowly. Growth of around 3% is expected both next year and this. In addition to net exports, consumption and investments will appear too, but the positive turn in domestic demand will be especially painfully affected by the drop in lending," he said. Hungary's unemployment rate is likely to remain over 10% in the coming two years and growth of real wages will probably be restrained, he added.
The transfer of private pension fund assets to the state could give Hungary a 2.5%-of-GDP general government surplus this year, Simor said. "If the government takes all of the measures outlined in the Szell Kálmán Plan, we project the deficit could reach 3.6% next year," he added.
The Szell Kálmán Plan has its own risks: it is not clear whether meeting the targets in the structural reform program will generate the revenue expected or will additional expenditures be required, he said. About 40% of disability pensioners have only completed primary school, thus it will not be enough to offer incentives. Active labor force programs will be necessary, and these will require budget funding, he explained.