PM Gyurcsany's new economic promgramme - could it be enough to avoid the disaster?

Article published on Feb. 22, 2009
Article published on Feb. 22, 2009
Regarding to the global economic crisis Hungary is the most vulnerable country in the Eastern-Central region of Europe. Hungary’s currency, forint has weakened a lot, many factories and financial institutions are in trouble, the stock market has sharply fallen. There are many reforms, scenarios, possible solutions to avoid an economic disaster. What is really going on?
Is there any chance to stop it? Little summery about Hungary’s situation.

Despite Hungary was the most promising country economically in year of joining to EU in 2004, nowadays the country is in the file-closer situation. Hungary’s vulnerability was always well-known, „the global financial crisis has been the external trigger that has led now to a liquidity and credit crunch, the risk of a sudden stop and of a reversal of capital inflows” – according to Nouriel Roubini, the journalist of RGE monitor.

Hungary’s economic increase was only 0,3% in the last year and the levels of government and external debt are still too high. Due to that fact Hungary has been particularly exposed to the global financial crisis. Political and economic life had to answer of course, therefore “to restore investor confidence Hungary adopted a policy of further fiscal adjustment and tighter deficit targets”- readable on the webpage of EU’s press releases. The Convergence Programme is based on the €6.5 billion loan from the European Union, “the programme foresees a continuation of the front-loaded budgetary consolidation strategy, with another important reduction in 2009 to 2.6% of GDP. Thereafter, it plans a more moderate progress towards a deficit of 2.2% in 2011. In view of the recent substantially deteriorated macroeconomic outlook and the related budgetary risks, the government adopted on 15 February an additional corrective package of 0.7% of GDP and slightly revised its 2009 deficit target upwards.”

On 16th of February the Hungarian prime minister Ferenc Gyurcsány announced a programme handleing the crisis based on three keystones: reforms in tax-, social- and pension system. The goverment is planning the rising of retiring age (from age 62 to 65) and the cancelling of 13th month pension. Gyurcsany expects bigger employment (from today’s 57% to 65-70%) and he also wants an exact plan how to enter to euro-zone. The prime minister talked about how to pare down Hungary’s expenses as well. Accordingly, the country’s cost has to be 220 billion forints fewer in this year and, this amount will be 550 billion forints in next year, moreover 650 billion forints in 2011.The personal income tax will rise from 18% to 19%, the turnover tax will increase from 20% to 23% and the taxes for alcohol, cigarette and fuel will change with 3-7%. Gyurcsány also has announced that the fall in GDP will be close to 3%. Briefly, Hungary needs an effective action plan immediately: forint is too weak and due to crisis the deficit is about 3-4%. If this programme will pass, it will mean about 200 billion forints saving in this year and, about 550 billion income in 2010.