The International Monetary Fund (IMF) conducted its regular consultation in Hungary under Article IV of the Articles of Agreement during November 8-18, 2022. The staff of the IMF concluded that maintaining a coordinated and tight fiscal and monetary policy mix is crucial to reduce vulnerabilities from economic imbalances. According to the IMF, due to the measures of MNB in order to tackle inflation, monetary conditions are sufficiently tight in Hungary. The IMF expects economic growth to be around 5 percent in 2022, followed by a deceleration in 2023. In addition to a significant improvement in the current account balance, experts of the IMF expect that the inflation rate may return to the single-digit territory by the end of 2023.
As part of its regular consultations under Article IV of the Articles of Agreement, the International Monetary Fund (IMF) undertakes (usually annual) missions to conduct comprehensive assessment of its members’ economic and financial developments. As opposed to last year’s visit – which was done virtually due to the COVID-19 pandemic – this year the IMF team led by Jean-François Dauphin (Mission Chief for Hungary) conducted in-person meetings in Hungary through November 8-18, 2022. During the nearly two-week-long series of consultations, the IMF's experts have met with the representatives of the MNB, the Ministry of Finance and other relevant ministries and held comprehensive discussions with professionals from the private sector – including commercial banks, stakeholders of the energy sector, trade chambers, unions - and with other Hungarian authorities.
Upon concluding the consultation, the staff of the IMF published the key findings of the mission in a statement, according to which maintaining a coordinated and tight fiscal and monetary policy mix is crucial to reduce vulnerabilities from economic imbalances. Upon the recovery from the COVID-crisis Hungary was hit by severe external shocks: supply-chain disruptions, rising energy and commodity prices, the ongoing war in Ukraine and the drought in addition to the strong internal demand, all of which contributed to a significant rise in inflation while turning the current account into a deficit.
The experts of the IMF acknowledged that in response to rising inflation, the Magyar Nemzeti Bank has significantly tightened the monetary conditions since June 2021 to a sufficient extent, by increasing the base rate, narrowing the liquidity and making use of the instruments announced in mid-October. According to them ‘tight monetary policy remains needed until inflationary pressures clearly and sustainably ease.’ The IMF emphasizes that a tight and consistent fiscal and monetary policy mix is indeed important to tackle risks stemming from the high level of uncertainty surrounding the economic outlook. The aim to reduce the budget deficit to 3.5 percent of GDP in 2023 is in line with the above objective, according to the assessment of the IMF, and also contributes to keeping the debt on a downward path. However, experts of the IMF underlined the importance of the structure of deficit reduction. The IMF expects economic growth to be around 5 percent in 2022, followed by a deceleration in 2023. In addition to the subdued domestic demand and the normalization of energy prices, the IMF also expects a significant improvement in the current account balance with the inflation rate possibly returning to the single-digit territory by the end of 2023.
The IMF delegation agrees that fighting against inflation requires specific, targeted measures, however, maintaining the price cap shall be reviewed and reconsidered. The experts of the IMF stated that the Hungarian banking sector was stable. In the deteriorating environment, supervisory vigilance is essential. The IMF has acknowledged the Hungarian measures to secure the energy supply and highlighted the importance of energy diversification. The experts shed light on the necessity of transparency regarding public spending.