The IMF issued a report on 3 April 2015 following the conclusion of discussions with the government of Hungary under Article IV of its articles of agreement. The economy has been growing strongly with output increasing by 3.6% in 2014. The fiscal deficit was reduced in 2014 owing to an increase in government revenues. This increase was a result of increased economic activity and of improvements in tax administration.

Growth in economic output is expected to decrease to 2.75% in 2015 owing to smaller domestic demand. In the medium term prospects for growth are subdued for reasons including a difficult business environment that is not spurring private investment. The country is not attractive enough for foreign direct investment. Policies should focus on reducing the vulnerabilities in the economy and increasing medium term economic growth.

The IMF report welcomes the commitment of the Hungarian government to fiscal discipline and recommends improving the efficiency of government spending and rationalizing the tax system, by gradually reducing sectoral taxes among other measures. Further efforts are required to reduce VAT fraud and to better target social benefits.

The IMF report therefore includes these measures in recommended policy options for implementation in the period 2015 to 2020. The recommended measures include the elimination of the exemptions and the sectoral taxes that cause distortion in the system. Streamlining of financial taxation would help to restore financial intermediation and encourage a growth in credit.

Compliance issues including VAT fraud should be dealt with. The prevention of fraud should be strengthened by identifying fraudulent companies at the time of registration. The detection of fraud should be increased by mobilizing the resources of anti-money laundering and other mechanisms for combating financial fraud.