Mihály Varga: High Time For A Credit Rating Upgrade

  • 23 Mar 2015 8:00 AM
Mihály Varga: High Time For A Credit Rating Upgrade
The country’s situation warrants an upgrade by credit rating agencies, as over the past years Hungary’s current account has posted massive surpluses, general government budget deficit has been below 3 percent for years, economic growth has been picking up and employment shows steady improvement, Minister for National Economy Mihály Varga said at the Hungarian Business Leaders Forum held in Budapest.

For the time being, he said, the Government has not modified the 2.5 percent GDP growth estimate for 2015, but persistently low oil prices are fuelling Hungarian economic expansion and it may lift GDP growth by as much as 0.5 percent.

The Minister stressed that already in the current parliamentary term the Government intends to cut the 27 percent VAT rate and introduce a single-digit personal income tax rate. It is also among the plans to narrow the gap between the two current rates of the corporate income tax. Among the long-term priorities he mentioned a zero-deficit government budget.

In his presentation, Mihály Varga pointed out that back in 2010 Hungary was often compared to Greece, due to debt and other issues. And while Greece has been taking out one loan after the other ever since, this year Hungary will not issue any forex bonds on international markets. To highlight differences between the two countries he added that three-year Greek government bonds yield some 20 percent, whereas comparable Hungarian securities pay 2.1 percent.

The Minister reiterated that the Government continues to be committed to stimulating economic growth and it aims to get Hungarian banks to boost lending. The MoU signed by the Government and the EBRD at the beginning of February partly serves this end, and so does the planned cutting of the bank tax. It is another favourable development, he continued, that one of the largest domestic commercial banks has announced that it will provide EUR 550 million for domestic branches to increase lending capacity.

In the next three years, the Government will carry out a strategic reorganization at banks in state ownership, but it does not intend to keep majority ownership in these credit institutions for many more years: as soon as they become stable and profitable in a sustainable way, they will be offered for market participants.

Mihály Varga also listed potential risks, such as the negative effect of the Russian-Ukraine conflict. On the positive side, the Minister mentioned that the prompt utilization of EU funding, the NBH’s Funding for Growth Scheme as well as the credit facilities of the Hungarian Development Bank and Eximbank have contributed to economic growth.

Mihály Varga said that the budget bill for 2016 is scheduled to be submitted to Parliament and the Convergence Programmes is set to be presented for the European Commission at the end of April. Accordingly, the drafting of these documents can be a parallel procedure and that ensures concord between them.

The Minister also said that the law on taxation is a set to be changed: the new law aims for a more taxpayer-friendly system effective as of 1 January 2016.

Source: Ministry for National Economy

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