Reforms for Stability and Sustainable Growth

An OECD Perspective on Hungary

image of Reforms for Stability and Sustainable Growth

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.


Overview: Reforms for Stability and Sustainable Growth

Looking at the current economic performance and the actual reform issues, there is no doubt that Hungary needs to forge ahead with both fiscal consolidation and structural reform. Doing so will bring considerable dividends to the economy. The immediate gains will come through increased confidence and lower interest rates. They will be reinforced over the medium term by the growing prospects for reducing taxes and social security wedges as public spending reforms get entrenched. If these issues are tackled with speed and determination, the Hungarian convergence process should pick up once again, underpinned by a more balanced economic development. While the ongoing Hungarian reform efforts impress by their scope and thoroughness, the purpose of this report is to help Hungary benefit from the experience of other OECD countries, which are also in the process of enhancing their growth potential by implementing pertinent structural reforms. The main aim of the report is to provide a forward-looking perspective, pointing out potential areas for further improvement, indicating risks, and highlighting interactions and complementarities between reforms.


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