Key developments and challenges

International financial markets are alert to potential debt sustainability issues, as Hungary’s traditional vulnerabilities – high foreign currency exposures among households and a large public debt burden – remain a concern. Fiscal policy will therefore need to focus on reducing the remaining tax distortions while new taxes should be designed in consultation with the private sector and in line with European Union (EU) principles of non-discrimination.

Key state-owned enterprises require urgent reform to support private sector growth, and to relieve pressures on the budget. The reform of the railways, which the authorities have already initiated, should be advanced swiftly.

The low participation rate in the labour force remains a key weakness. Key reforms to welfare provisions and pensions are necessary to boost the labour supply and increase the economy’s potential growth rate.