Summary: KEY ISSUES Context. The economy is recovering gradually, helped by supportive macroeconomic policies, favorable external conditions, and improved market confidence. This, together with a welcome reduction in vulnerabilities, supported Hungary’s financial stability during bouts of volatility in emerging markets over the past year. Nevertheless, external and public debts remain high, thus making the economy susceptible to shocks; and the country faces subdued growth prospects. The government’s strategy to address these challenges included sizeable fiscal consolidation and unconventional measures that increased the state’s role in the economy and shifted the burden of adjustment to specific sectors. Policy recommendations. Policies should aim at building buffers and comprehensively addressing obstacles to strong, sustained growth. ? Fiscal policy. Adopt an ambitious and growth-friendly fiscal adjustment strategy to reduce the public debt ratio sustainably and build policy space. The strategy should rely on durable expenditure consolidation, enhanced composition of spending, and a gradual elimination of distortionary taxes. ? Monetary policy. Stop monetary policy easing and stand ready to raise the policy rate if market conditions warrant. A clear communication strategy will play a crucial role in guiding market expectations. Maintain adequate reserve coverage to support financial stability. ? Financial sector. Help restore financial intermediation by improving the banks’ operating environment, including steps to facilitate faster resolution of nonperforming loans and to reduce the tax burden on banks. The Funding for Growth Scheme should remain limited, targeted, and time-bound, with fiscal costs clearly recognized. ? Structural reforms. Advance structural reforms aimed at removing labor market bottlenecks, enhancing the business climate, and boosting productivity in the services sectors. Limited government interference in the economy and increased policy predictability could strengthen confidence, and foster private sector investment and employment creation.

Legal Disclaimer:

EIN Presswire provides this news content "as is" without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the author above.