The IMF encourages the authorities to pursue growth-friendly consolidation for faster deficit and debt reduction. Priority should be given to enhancing the quality of expenditure and composition of revenue while a gradual reduction in the elevated wage bill could be part of a comprehensive administrative reform to rationalize and better target subsidies.

In its statement, the IMF welcomed an improvement in tax compliance and encouraged action to further improve revenue by reducing exemptions and the number of items subject to preferential VAT rates.

The directors supported the current monetary policy stance, but highlighted the need to monitor inflationary pressures.

With the economy and the banking sector improving and new lending resuming, the usual monetary policy transmission mechanisms are likely to be restored.

The IMF projects 2.9% GDP growth for this year and 3% growth for next year in Hungary. Private consumption could rise by 2% and 1.9%, respectively, and average inflation could be at 2.5% then 3.2%.

The IMF’s projections are under the government’s forecasts for GDP growth of 4.1% in 2017 and 4.3% next year. In a statement, the economy ministry welcomed the IMF report and noted the IMF’s “appreciation of the Hungarian economy’s high performance now unbroken for several years” supported by a progrowth economic policy, efficient use of EU funds and a good external environment.

Republished with permission of Hungary Matters, MTI’s daily newsletter.