Fiscal targets commendable but details vague
Overview:
The economy is now recording positive growth but the recovery continues to be fragile and uneven. The current account is in surplus and the level of FX reserves high. Inflation is reasonably well contained but growing upside risks have persuaded the central bank to start hiking interest rates. The Fidesz government has committed itself to a program of fiscal deficit reduction and to reducing the public debt to GDP ratio from current dangerously high levels. It targets lower tax rates and a higher employment ratio to raise economic growth in the medium-term. These aims are commendable but must also be credible. This will require the identification of permanent spending cuts rather than the series of ad hoc and counter-productive measures that we have seen to date such as windfall taxes, reversal of pension reform and dilution of the powers of the Fiscal Council and MPC. More details are needed.