The IMF recommends that the government review the tax system and bring it in harmony with expenditures, although it does not call for the scrapping of the flat tax, Nepszabadsag notes. The IMF also recommends that the government abolish its special taxes.

The IMF also calls on the government to strengthen the Budget Council.

The IMF approves of the central bank’s recent monetary tightening, but expressed concern over recent legislation that calls its independence into question.

Economic growth will be a modest 0.3% in 2012, but Hungary could slip into recession in the event of an escalating crisis in the euro zone, the report said.

Even in the latter case, the decline would not be as steep as in 2008, as the economy has not really taken off since then and the base year remains low.

The IMF projects that inflation will peak at 5% and unemployment of 11.5% this year.

Noting the fourth consecutive annual decline in consumer spending, the report states that the government’s ad hoc economic measures have created further uncertainties.

The IMF sees the government’s budget deficit target of 2.5% of GDP as highly ambitious, adding that further fiscal tightening is required to meet that goal.

The budget reserves, equalling 0.75% of GDP, may prove insufficient if the macroeconomic environment deteriorates, they warned.

As to measures affecting the financial sector, the document advises Hungarian authorities to continuously monitor banks’ financial positions and ensure that banks have adequate reserves.

The measures taken by the government on foreign-currency mortgages have been ineffective, the IMF said."

Source: Hungary Around the Clock

This news item is one of many published daily by HATC, a premier subscription news service which distributes English-language info about Hungary via email or fax. For a free trial of HATC follow this link and click on 'Free Trial Subscription'.