On 3 May 2021 the IMF issued a concluding statement following a consultation with Hungary under Article IV of the IMF’s articles of agreement.

Following a 5% contraction in output during the pandemic in 2020 the economy is expected to recover in 2021 as a result of policy support, a rapid vaccination program, recovery of trade and access to EU funds. Downside risks are related to the uncertainties over the virus in Hungary and globally.

The economy has been supported by a loan moratorium, tax holidays, increased government spending and EU-financed programs. Fiscal spending has been directed at healthcare spending, wage support for reduced working hours, investment support and direct transfers to affected industrial sectors.

Fiscal policy should combine support for the economic recovery in the short term with the creation of room for policy initiatives in the medium term. If the economic recovery is faster than expected, the additional tax from higher growth can be used to rebuild fiscal buffers, but if there are setbacks the support for households must continue. Regular reassessment and flexible adjustments will be required.

Scarring from the crisis can be reduced by targeted support to the corporate sector, especially support for small and medium-sized enterprises (SMEs). Measures can be taken to facilitate the recovery in the short term by introducing temporary incentives to hiring, encouragement of investment, for example by temporary investment tax credits, or measures to facilitate financing including equity funding.

Tax measures could include improvements to tax collection, reduction of tax exemptions and preferential regimes, and measures to broaden the tax base. Labour market participation for people aged under 25 could be facilitated through active labour market policies, training, and hiring subsidies rather than introducing tax exemptions.

In the medium term, the trend towards more e-commerce and teleworking, and the restructuring of global value chains will bring a need for economic transformation and labour reskilling. Management of these changes combined with measures to encourage a greener economy, could reduce any falls in output compared to the period before the pandemic.

There is a need to strengthen the insolvency and debt recovery frameworks. The proposed revisions to the bankruptcy law aim would give support to orderly corporate restructuring. The reallocation of labour and skills between different industrial sectors should be supported by a stronger social safety net, including unemployment benefits, and higher investment in human capita. Support should be given to life-long retraining, where spending is currently below the EU average.

Hungary plans to attain climate neutrality by 2050, by relying on renewable energy and nuclear energy with more recycling, and energy conservation. Higher carbon pricing can promote energy efficiency and innovation and would also raise additional tax revenue that could help to finance more green investment and support for lower income groups with their energy costs. Green investment could also be promoted using transparent fiscal subsidies.