IMF recommends the abolition of the food price cap and the elimination of special taxes to the Hungarian government

By: Trademagazin Date: 2023. 02. 15. 12:40

After their visit last November, experts from the International Monetary Fund (IMF) made concrete economic proposals for the Hungarian government in addition to the usual review, reports the Portfolio. According to the experts of the IMF, the Orbán government’s strict economic policy will continue to be key in the future “so that vulnerable households can survive the significant increase in the cost of living”.

The recommendations of the International Monetary Fund to the Hungarian government are as follows: The temporary special taxes introduced last year in connection with the energy and banking sectors must be phased out according to the original plans.
Just as the official price of fuels was abolished in December, the same should be done in the case of foodstuffs, as the costly and ineffective price caps could not curb the rise in food inflation. According to the IMF, although the utility reduction was able to protect Hungarian households from rising energy prices, on the one hand it meant more support for the rich and had an impact on inflation. Therefore, further fine-tuning will be needed to encourage people to save energy.

As long as the inflationary pressure does not ease, a strict monetary policy is necessary, and interest-subsidized loans should be phased out, as they go against the central bank’s aspirations. According to the latest news, inflation was 25.7 percent in January, which is another record.

Hungarian banks should also be kept under strict supervision, because they may come under pressure if the increasing interest income does not offset the increasing tax burden and the costs of the interest rate freeze. For similar reasons, the insurance sector should also be kept in mind, according to IMF experts. It is necessary to continue the Hungarian anti-corruption measures.

Finally, Valutaalap’s analysts also touched on energy transport: although for now there is no need to fear the loss of Russian natural gas and the fact that the reserves will run out, the winter of 2023-24 could already be problematic. The creation of alternative energy carriers would require important investments in the coming years.

They also criticized the government’s measures, because in their opinion. the originally planned budget deficit target of 3.5 percent should have been maintained instead of the cabinet raising it to 3.9 percent at the end of 2022.