Press Release No. 09/331

Press Release: IMF Executive Board Completes Third Review Under Hungary's Stand-By Arrangement, Extends the Arrangement, and Approves €53.7 Million Disbursement

September 25, 2009

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Hungary's economic performance under a program supported by a Stand-By Arrangement (SBA). The Board also extended the SBA by six months to October 5, 2010 to support the country’s economic program during the election and transition period to a new government, and approved the rephasing of the undisbursed amounts over the remainder of the arrangement. The completion of the third review enables the immediate release of SDR 50 million (about €53.7 million or US$79.3 million), bringing total disbursements under the program to SDR 7.64 billion (about €8.20 billion or US$12.12 billion).

In completing the review, the Board also approved a modification of the performance criterion on net international reserves given improved external financing conditions.

The SBA was approved on November 6, 2008 (see Press Release No. 08/275) for SDR 10.54 billion (about €11.32 billion or US$16.72 billion). The arrangement entails exceptional access to IMF resources, amounting to 1,015 percent of Hungary's quota.

Following the Executive Board’s discussion on Hungary, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:

“Macroeconomic and financial policies in Hungary are on track. Continued implementation of policies consistent with the program remains essential to strengthen macroeconomic stability and provide the basis for strong, sustainable growth over the medium term.

“Fiscal sustainability is being strengthened through structural spending reforms to the pension system, social transfers, and subsidies. At the same time, tax reform is shifting the tax burden from labor to consumption and wealth, which should boost labor participation and potential growth over the medium term. The full implementation of these comprehensive structural reforms is essential to put government debt as a share of GDP firmly on a declining path.

“Financial stability is being maintained through a further strengthening of the capability to do on-site bank inspections, institutional reform to improve the supervisory agency’s independence and strengthen the central bank’s authority on macro-prudential issues, and the careful monitoring of banks that have received government financial support.

“Monetary and exchange rate policy will continue to target inflation over the medium term, while the authorities will remain prepared to act as needed to mitigate risks to financial stability. The combination of improved global financial conditions and increased confidence in fiscal sustainability has created room for cautious interest rate cuts,” Mr. Kato stated.