Factbox: Unresolved issues between Hungary and lenders

(BestGrowthStock) – A review of Hungary’s 20 billion euro ($26 billion) IMF/EU financing deal was suspended on Saturday after lenders said more time was needed to get a clearer view on the new center-right government’s economic policies.

Here is a list of unresolved issues:

BUDGET DEFICIT TARGETS IN 2010/2011

The lenders have welcomed Hungary’s commitment to a previously agreed 3.8 percent of GDP budget deficit target for 2010 but stressed that further steps were needed to reach that target and also to cut it below 3 percent of GDP next year.

Economy Minister Gyorgy Matolcsy told Reuters before the review that Hungary wanted to negotiate a higher, 3 to 3.8 percent of GDP deficit for 2011 in exchange for structural reforms.

Cutting the deficit further is important to put Hungary’s state debt, the highest in central Europe at about 80 percent of GDP, on a sustainable downward path at a time when debt worries on the euro zone periphery are keeping investors on edge.

The lenders also said measures announced so far to cut the deficit to 3.8 percent of GDP by the end of the year were largely temporary and sustainable fiscal consolidation would require durable, non-distortive measures.

FINANCIAL SECTOR TAX

The lenders said a planned financial sector tax, designed to raise 200 billion forints ($916.8 million) in revenue this year, would help achieve short-term budget targets but at the cost of curbing lending and hurting economic growth.

The government booked the same amount from the new tax for 2011 in a bill submitted to parliament and the document also provides for the tax to be levied in 2012 although it does not have a firm revenue target for that year.

STRUCTURAL REFORMS

The lenders noted the government’s commitment to structural reforms, such as in transport and health care, but said it was not in a position to provide sufficient clarity on future plans on this front during the current review.

CENTRAL BANK INDEPENDENCE

The lenders urged the government to respect the independence of the central bank after a proposed public sector pay ceiling, which would cut the central bank governor’s pay by 75 percent, triggered strong objections from the European Central Bank.

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(Compiled by Gergely Szakacs; Editing by David Holmes)

($1=.7706 Euro)

($1=218.15 Hungarian Forint)

Factbox: Unresolved issues between Hungary and lenders