Economy
NBH Governor Matolcsy: Hungary lacks requirements for steady 4%+ growth
Speaking in a conference, Matolcsy stressed the importance of EU development funds going primarily to Hungarian-owned SMEs, noting that efforts to coordinate the NBH's Credit Programme for Growth with EU funding, as well as the central bank's interest rate policy, serves exactly that purpose.
Incidentally, the NBH has announced a decision on Wednesday to move the end date of new credit agreements under Phase 2 of the Credit Programme for Growth from 31st December 2014 to 31st December 2015.
The Governor mentioned Hungary's banking system among the hurdles to economic growth. "Given banks' current ownership structure, their anti-competitive mode of operation, and the post-bottom-line-adjustment situation they are in, Hungary's banking sector is unable to support persistent and dynamic economic growth," Matolcsy argued. Among the things Hungary needs to do, he mentioned the country needs to assist and accelerate the process of a transition, possibly with the help of policy tools.
The central bank Governor welcomed the news of Hungary's acquisition of MKB Bank from German parent BayernLB, expressing a hope that the transaction could be followed by several similar deals to facilitate change transformation of the banking sector. Matolcsy sees an indispensable need for a development plan for Budapest, as EU funds have limited use in development in the capital city.
There is a need for a public debt reduction programme, too, Matolcsy argued. Thanks to the NBH's unbroken series of rate cuts over the past 24 months, the interest component of Hungary's debt service obligation is going to decline by HUF 300 billion per year, or 1% of GDP, starting next year, he claimed. Meanwhile, EU funds will add an average HUF 1,500 billion per annum in development funds to the country's budget up until the year 2020. Assuming that 30% of this amount will become tax revenue, EU sources are projected to add extraordinary budget funds of about HUF 400 to 500 billion, Matolcsy stated, adding that both should be used in a targeted way towards debt reduction. In the central bank Governor's estimate, targeted use of funds would enable Hungary to reduce its government debt rate by 3% each year in the five years from 2016 to 2020, once EU funds start coming in.
Economic recession in the EU or the eurozone is not yet over, Matolcsy noted, something that casts a shadow over Hungary's growth prospects as well. No other EU country has undergone such a gigantic, yet sustainable financial consolidation and economic stabilisation process as Hungary did, he added. "However, it should be noted that a sustainable fiscal balance does not automatically imply sustainable and dynamic economic growth." Although Hungary has clearly witnessed an economic recovery this year, however Hungary's economic environment dies not support long-term growth due to inherited economic barriers, coupled with the current global, EU and eurozone environment, Matolcsy reasoned.
Incidentally, the NBH has announced a decision on Wednesday to move the end date of new credit agreements under Phase 2 of the Credit Programme for Growth from 31st December 2014 to 31st December 2015.
The Governor mentioned Hungary's banking system among the hurdles to economic growth. "Given banks' current ownership structure, their anti-competitive mode of operation, and the post-bottom-line-adjustment situation they are in, Hungary's banking sector is unable to support persistent and dynamic economic growth," Matolcsy argued. Among the things Hungary needs to do, he mentioned the country needs to assist and accelerate the process of a transition, possibly with the help of policy tools.
The central bank Governor welcomed the news of Hungary's acquisition of MKB Bank from German parent BayernLB, expressing a hope that the transaction could be followed by several similar deals to facilitate change transformation of the banking sector. Matolcsy sees an indispensable need for a development plan for Budapest, as EU funds have limited use in development in the capital city.
There is a need for a public debt reduction programme, too, Matolcsy argued. Thanks to the NBH's unbroken series of rate cuts over the past 24 months, the interest component of Hungary's debt service obligation is going to decline by HUF 300 billion per year, or 1% of GDP, starting next year, he claimed. Meanwhile, EU funds will add an average HUF 1,500 billion per annum in development funds to the country's budget up until the year 2020. Assuming that 30% of this amount will become tax revenue, EU sources are projected to add extraordinary budget funds of about HUF 400 to 500 billion, Matolcsy stated, adding that both should be used in a targeted way towards debt reduction. In the central bank Governor's estimate, targeted use of funds would enable Hungary to reduce its government debt rate by 3% each year in the five years from 2016 to 2020, once EU funds start coming in.
Economic recession in the EU or the eurozone is not yet over, Matolcsy noted, something that casts a shadow over Hungary's growth prospects as well. No other EU country has undergone such a gigantic, yet sustainable financial consolidation and economic stabilisation process as Hungary did, he added. "However, it should be noted that a sustainable fiscal balance does not automatically imply sustainable and dynamic economic growth." Although Hungary has clearly witnessed an economic recovery this year, however Hungary's economic environment dies not support long-term growth due to inherited economic barriers, coupled with the current global, EU and eurozone environment, Matolcsy reasoned.
