Brussels, 16 November 2009
Commission concludes third review of the EU balance-of-payments assistance for Hungary
On 16 November 2009, the European Commission services, in close cooperation with the International Monetary Fund staff, have completed the third review under the EU balance of payments assistance concluding that Hungary has made good progress regarding its economic programme. Against the background of a markedly improved access to market finance and strongly reduced external financing needs, Hungary is not requesting the release of international assistance upon the completion of this review.
"Hungary has achieved good progress in containing public spending through numerous measures, which have supported the strong adjustment of the external imbalance, increased investor confidence, and contributed to a substantially improved access to market financing", Commissioner Almunia said. "The fiscal consolidation has to be continued in order to further strengthen the sustainability of Hungary’s public finances, put public debt on a declining path, and create the necessary room for more growth-oriented policies."
Hungary has been on track in fulfilling its obligations, laid down in the Memoranda of Understanding, and has taken additional measures when it was needed. The government has made important progress towards addressing both immediate problems in relation to the crisis, as well as tackling long-standing structural issues. The fiscal consolidation has continued in 2009 and has led to an improvement in the structural balance of around 2 ¾ % of GDP, on top of the important adjustment achieved in the previous two years. Measures on the expenditure side included savings in the pension and housing subsidy systems. The Commission's Sustainability Report 2009 documented that Hungary has made a very substantial improvement in long-run fiscal sustainability since the previous report of 2006.
The macroeconomic outlook for 2010 has improved slightly in the context of a better outlook for the euro area. In order to achieve the deficit target of 3.8% of GDP in 2010 and correct the excessive deficit in 2011, respectively, a rigorous implementation of the budget, in line with the new fiscal framework, will be indispensible. At the same time, the authorities will need to take steps to rebuild budgetary reserves in case of adverse developments. The financing needs generated by some loss-making public enterprises will also need to be addressed. Finally, building on the steps already taken, the planned reinforcement of the financial sector supervision and improvement of the regulatory environment will further enhance the stability of this sector.
The Commission services will continue to monitor the situation in Hungary and will conduct additional reviews in the course of next year. This is not only important in the context of the current international support package of € 20 billion, but also in the light of EU surveillance and the excessive deficit procedure under the Stability and Growth Pact.
So far, Hungary received three instalments of the EU €6.5 billion balance of payments loan: two instalments of €2 billion each on 9 December 2008 and 26 March 2009 and a further €1.5 billion on 6 July 2009. In view of the improved access to financing, Hungary will not draw on the EU and IMF assistance upon the completion of the current review. However, as is the case of the IMF loan, the outstanding amount of EU assistance (of up to EUR 1 billion) will remain available, and could be disbursed if needs arise, as usual subject to policy conditionality. The EU assistance has been granted for a period of 2 years which will end on 3 November 2010.
On the Commission side, the mission was led by Elena Flores, Director at the Economic and Financial Affairs Directorate (ECFIN) and Barbara Kauffmann, Head of Unit at ECFIN for a group of countries that comprises Hungary.