IMF, EU suspend funds to Hungary over deficits
By Krisztina Than |
July 19, 2010, Monday
|
Print Edition
Print Edition
THE IMF and EU have suspended a review of Hungary's funding program, which was set up in 2008 to save the country from financial meltdown, saying it must take tough action to meet targets for cutting its budget deficit.
Suspension of talks means Hungary will not have access to remaining funds in its US$25.1 billion loan package, created by the International Monetary Fund and European Union and which it now uses as financial safety net, until the review is concluded.
Analysts said the forint currency could fall sharply when financial markets reopen today due to uncertainty over the international safety net for Hungary, which has financed itself from the markets since last year.
"In an environment of heightened market scrutiny of government deficits and debt levels, the fiscal deficit targets previously announced - 3.8 percent of GDP in 2010 and below 3 percent of GDP in 2011 - remain an appropriate anchor for the necessary consolidation process and debt sustainability, and should be adhered to, but additional measures will need to be taken to achieve these objectives," the IMF said.
"Sustainable consolidation will require durable, non-distortive measures, which the authorities need more time to develop," it said.
Suspension of talks means Hungary will not have access to remaining funds in its US$25.1 billion loan package, created by the International Monetary Fund and European Union and which it now uses as financial safety net, until the review is concluded.
Analysts said the forint currency could fall sharply when financial markets reopen today due to uncertainty over the international safety net for Hungary, which has financed itself from the markets since last year.
"In an environment of heightened market scrutiny of government deficits and debt levels, the fiscal deficit targets previously announced - 3.8 percent of GDP in 2010 and below 3 percent of GDP in 2011 - remain an appropriate anchor for the necessary consolidation process and debt sustainability, and should be adhered to, but additional measures will need to be taken to achieve these objectives," the IMF said.
"Sustainable consolidation will require durable, non-distortive measures, which the authorities need more time to develop," it said.
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