Strong economic policies but elections loom
Overview:
The Bajnai government is establishing a good record of policy implementation under the IMF program. The 2nd review of the Stand-By Arrangement has been approved and a 3rd disbursement secured. Beyond boosting the level of foreign exchange reserves, these improved policies are helping to tackle some of the large economic vulnerabilities that Hungary had accumulated in previous years. This is reflected in improved sentiment on Hungarian financial markets. The problem is that this government will not be in place beyond the next parliamentary elections (due in April). The electorate is more likely to focus on weak economic growth and a sharp increase in unemployment than on the government’s achievements. A highly probable opposition victory will pose a serious test to existing policy commitments.