The Hungarian government and the National Bank received good marks from the International Monetary Fund (IMF) staff on its "swift and strong response" to the pandemic. The economy entered the pandemic on a strong footing and the authorities responded swiftly and strongly to the crisis, the IMF staff said in the concluding statement of their 2021 Article IV mission on May 3.
The authorities' policy response was large and timely. This led to the budget deficit ballooning from below 3% of GDP between 2012 and 2019 to over 8% and state debt jumping from 65% to over 80% of GDP.
The MNB also reacted quickly to market pressures, providing liquidity through various instruments, according to the statement.
The government sought to contain the pandemic and support the economy through a loan moratorium, tax holidays, increase and reprioritization of spending, and EU-financed programmes. Fiscal spending focused on purchases of medical supplies, bonuses and wage increases to healthcare staff, wage support for reduced working hours, investment support, and direct transfers to affected sectors," they added.
The IMF called for maintaining well-targeted fiscal support as long as the recovery is not well entrenched, but added that any revenue windfall from a faster-than-expected rebound should be saved. "Fiscal policy needs to balance providing sufficient support for the recovery in the short run and gradually rebuilding room for fiscal policy manoeuvre in the medium run," they added.
The government forecasts growth of 4.3% in 2021 and 5.2% next year and a budget deficit of 7.5% and 5.9% in the same period.
The staff suggested current spending could be lowered by "rationalising" public sector employment, while tax revenue could be boosted through improved tax collection, reduced tax preferences and exemptions, and a broadening of the tax base.
They added that a temporary reduction in the VAT rate on home construction "may not have been needed" given the strength of the market and other incentives to increase supply, while a decision to exempt Hungarians under 25 from personal income tax may not be as effective a tool to increase labour market participation among the age group as training and hiring subsidies.
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