Hungary needs additional steps to meet 2013 deficit target: IMF

WASHINGTON (Reuters) - Hungary needs to take additional measures to meet its 2013 budget deficit target and reduce public debt, the International Monetary Fund said on Thursday following initial talks with the government on an IMF-funded economic program.

"Greater focus should be placed on achieving a more balanced fiscal consolidation, shifting away from ad hoc tax measures towards streamlining public expenditures" while protecting the poor, IMF mission chief to Hungary Thanos Arvanitis said in a statement.

Budapest has targeted a 2013 budget deficit of 2.2 percent of gross domestic product and earmarked social tax cuts for employers and small firms to save jobs and boost public support.

The IMF said a smaller and more efficient state with strong and predictable policies would create better conditions for private sector-led growth and reduce tax burdens over time.

The minister in charge of the IMF talks, Mihaly Varga, told Hungary's HirTv the main difference in the discussions was that the IMF expected weaker growth in 2013, which would push the budget deficit higher than the government's target.

He said the government was willing to consider additional measures to put the budget's revenue and spending sides on firmer grounds. "We may need further measures anyway," he said. "We are ready to do these."

The IMF said talks with the government, which began last week after an eight-month delay, would continue in the period ahead.

The IMF's Arvanitis said Hungary's economy was hamstrung by high debt level, strained bank balance sheets, weak investor confidence and elevated risk perceptions.

The Fund has forecast that the economy will likely contract in 2012 and recover modestly in 2013. Monetary police was appropriate given the recent rise in inflation, Arvanitis said.

He said banking reforms were "critically important" so that banks were strong enough to support an economic rebound. The focus should also be on reforming struggling state-owned enterprises and introducing regulations that were equal for all companies.

"The contracting credit reflects mostly structural challenges confronting the banking, household, and corporate sectors as well as recent policy actions," he added.

(Reporting by Lesley Wroughton; Editing by Gary Hill)

Source: http://news.yahoo.com/hungary-needs-additional-steps-meet-2013-deficit-target-183103264--sector.html

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