Hungary’s macroeconomic fundamentals have stabilised following the reforms implemented in the post-2010 period; however, targeted improvement of competitiveness is required in order to ensure the achievement of sustainable economic convergence. Continuing the work of previous years, the Magyar Nemzeti Bank has proposed a comprehensive competitiveness programme consisting of 330 points. If implemented, the Programme’s recommendations would be an important contribution to support Hungary’s catching-up with the most developed economies.
The objective of the Competitiveness Programme covering 12 key economic areas is to support Hungary’s success in achieving economic convergence. Presenting results of work on the improvement in competitiveness in recent years, staff have extended the analysis of aspects of the country’s competitiveness in a more detailed way, which are less in the focus in the traditional macroeconomic analyses of central banks, although they have a determining role in economic trends. The Competitiveness Programme is a continuation of that work: It sets out in detail the proposals which, if implemented, may contribute significantly to Hungary’s successful economic convergence. The Programme was created to support the work of the Hungarian government, in line with the Magyar Nemzeti Bank’s statutory mandate.
Reforms ensuring the restoration of economic balance and growth, implemented in the post-2010 period, have created the conditions for sustainable convergence in Hungary. The major shifts in fiscal policy after 2010 and then in monetary policy after 2013 have stabilised the government budget and have helped the Hungarian economy return to a growth path. The harmonisation of the two major branches of economic policy from 2013 has given rise to a new economic model which is capable of ensuring dynamic growth at the same time as maintaining macrofinancial balance. This model has also helped Hungary, together with the rest of the Visegrád countries, to become the engine of growth in the European Union.
Hungarian economic convergence can only be successful if an annual growth surplus of at least 2 percentage points above developed countries’ growth is maintained over the long term. As a result, Hungary may achieve 80-90 percent of Austria’s level of development and net real wages may double by 2030. However, rapidly growing developing economies often see that their growth surplus over developed regions’ growth run out before they could catch up with more advanced economies. In the last 100 years, there have been only a dozen countries which could escape the middle income trap. Therefore, sustainable convergence is not an automatic process, and there is no universal recipe to achieve it. In order to be able to converge to the most advanced countries, a major shift in competitiveness is needed in Hungary, which may be realised through reforms affecting numerous areas in the economy.
The Magyar Nemzeti Bank’s Competitiveness Programme includes 330 recommendations in 12 areas to improve competitiveness in Hungary. The recognition behind the recommendations is that the economy has strong potential for growth. Utilising this potential efficiently may result in persistently higher economic growth. Its most important source is the improvement of productivity of Hungarian-owned small and medium-sized enterprises, growth in their average size and improvement in their competitiveness in foreign markets. The financial intermediary system can foster companies’ growth by improving the efficiency of the banking system and significantly widening the scope of alternative financing mechanisms (the stock exchange and the corporate bond market). Hungary’s most important national treasure is the knowledge and skills of those living here; therefore, the Central Bank’s recommendations are also aim at the improvement of health status, the strengthening of the knowledge-based society, and the support to families and child birth. All these must be supported by the efficient operation of the governance; taking advantage of digitalisation presents an opportunity to achieve this goal. The recommendations take into account international best practices, but all of them are based on the assessment of the current conditions in Hungary.
The introduction, a detailed summary and the list of the 330 recommendations of the Magyar Nemzeti Bank’s Competitiveness Programme can be accessed via the link below.