Reforms for Stability and Sustainable Growth

An OECD Perspective on Hungary

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EU accession in 2004 has confirmed Hungary’s successful transformation from a centrally planned economy into a functioning market economy operating within the framework of a multi-party democracy. However, the country’s output per capita is still well below the EU average, and public expenditures exceed revenues by a large margin. This report looks at ongoing efforts to restore fiscal balance and promote sustainable growth to accelerate the convergence process. Drawing on the experience of OECD member countries it proposes structural reforms to achieve these objectives, covering the following topics:

• Fiscal policy: Deficit reduction and making taxes and expenditures more growth friendly.

• Health care reform: Improving efficiency and quality of care.

• Pension reform: Providing old-age income security in the face of population ageing.

• Employment and social policies: Making formal employment more attractive.

• Education reform: Improving human capital formation.

• SME promotion:  Increasing competitiveness and fostering successful entrepreneurship.

• Innovation: Fostering rapid productivity growth.

• Energy policy and the environment: Responding to the threat of climate change.

• Public administration reform: Improving the performance of the public sector.

• E-government: Using technical progress to improve public service delivery.

An overview chapter synthesises the findings, highlighting the interdependence of policy actions in the various areas.



Energy Policy and the Environment: Responding to the Threat of Climate Change

While greenhouse gas (GHG) emissions per capita are relatively low, Hungary is releasing high levels of greenhouse gases relative to the size of the economy, reflecting inefficient use of energy. Efforts to raise energy efficiency constitute an important policy option to reap multiple benefits: (i) reduced reliance on energy imports; (ii) reduction of GHG emissions (energy production and use contribute most GHG emissions in Hungary); and, (iii) reduced air pollution and related health impacts. With an average 3% per year the reduction in energy intensity over recent years in Hungary has been impressive. The question is whether this rate of improvement, mainly due to significant changes in Hungary’s industrial structure, can be continued without stronger energy efficiency policies. In the longer term (post 2012), more stringent climate policy objectives (in the European Union context) will generate additional incentives to harness cost-effective energy efficiency potentials in many sectors of the Hungarian economy. OECD analysis shows that large reductions in GHG emissions are achievable at relatively low costs if the right policies are put in place. It is suggested that Hungary considers: (i) stronger use of market-based instruments; (ii) better integration of GHG emission objectives in relevant policy areas such as power supply, transport, and residential energy use; and (iii) cost-effective measures to speed technological innovation and diffusion of renewable energy.


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