Conference on fiscal responsibility

Abstract

For over a decade and a half, Hungary has been facing a significant public sector imbalance. Since the beginning of post-socialist transition, fiscal performance has been dominated by the political cycle, as compared with most other countries where the fiscal position reflects largely the economic cycle. The deficit bias has been particularly pronounced during electoral campaigns. The ensuing buildup of public debt has by now reached an unsustainable path. As a result, Hungary has been subject to the excess deficit procedure under the Stability and Growth Pact since accession to the European Union, and has failed to meet the Maastricht criteria for admission in the euro area.1 More important, however, the public sector imbalance may lead to a currency crisis, especially in the event of a sudden shift in the currently prevailing favorable investment sentiment and abundant global liquidity conditions.