"One-Pager" Policy Briefs
Hungary - United States Relations: An Intro. Historical Overview (PDF)
Posted: 9 April 2020
This report presents a brief introduction to Hungarian-US relations since 1920.
Economic and Policy Response to Coronavirus
IMF Update on Policy Actions in Hungary
The following information is copied straight from the IMF for your convenience. Also, find it here: https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#H
Summary: The number of confirmed COVID-19 cases in Hungary was 895 on April 8, with 58 deaths. The economy has been hit hard by the outbreak as it is tightly intertwined globally through supply chains and tourism. The government declared a state of emergency on March 11 and implemented various containment measures, including travel and activity restrictions, and mandatory distance learning for schools and universities. Since March 27, mandatory shelter-in-place is in place, except for essential business and activities (e.g., food shopping, healthcare).
Key Policy Responses as of April 8, 2020
A first wave of fiscal measures were introduced earlier in the epidemic, including, on the revenue side, measures to alleviate the fiscal burden on businesses: (i) employers' social contributions will be lifted in the most affected sectors; (ii) the health care contributions will be lowered through June 30; (iii) around 80,000 SMEs (mainly in the services sector) will be exempt from the small business tax (the payment of the tax by other companies in affected sectors will be deferred until the end of the state of emergency); (iv) the tourism development contributions will be temporarily cancelled; (v) media service providers will be given a tax relief for incurred losses of advertising revenue; and, (vi) procedures for collecting tax arrears will be suspended during the state of emergency. On the spending side, about HUF 25 billion (0.06 percent of GDP) was reallocated for the healthcare sector.
On April 8, a new package of new measures was announced, supported by the creation two new funds, the Anti-Epidemic Protection Fund and the Economy Protection Fund. The Fund will be financed through new taxes on the private activity and reallocations from ministries and from the Employment Fund. Their spending targets (i) job protection, notably by subsidizing wages to companies on workers who were put on shortened work hours; (ii) job creation by supporting investments worth a total of HUF 450bn; (iii) support for priority sectors, including tourism, health, food, agriculture, construction, logistics, transport, film and entertainment industries; (iv) provision of interest-subsidized and guaranteed credit facilities to Hungarian companies.
MONETARY AND MACRO-FINANCIAL
Since the start of the pandemic, the central bank (MNB) increased access to liquidity through: (i) an increase in the regular forint-liquidity swap stock at regular auctions; (ii) the introduction of the daily provision of one-week forint-liquidity swaps; (iii) the expansion of eligible collateral; (iv) the introduction of a long-term unlimited collateralized lending facility; and (v) suspension of penalties for unmet reserve requirements. On April 1st, it introduced a one-week deposit tender at the Lombard rate, which effectively tightened overall liquidity and eased depreciation pressures on the HUF. On April 7, the MNB announced (i) a change in the overnight lending rate by 95 bps to 1.85 percent, making the interest rate corridor symmetric (with the overnight deposit rate at -0.05 percent; the base rate at 0.9 percent; and the overnight lending rate at 1.85 percent); (ii) an increase in the one-week lending rate to 1.85 percent; and (iii) the elimination of the target on the amount of the liquidity injection or withdrawal to give greater flexibility to monetary policy. A quantitative easing program was also launched, consisting of buying government securities on the secondary market, and the mortgage bond purchase program is being re-started. The details of these two programs will be announced later. Measures were also taken to provide financial relief to households and corporates borrowers, including: (i) the provision of a grace period of repayment of loans to the Growth Funding Facility (subsidized lending to SMEs supported by the MNB); (ii) the extension of short-term loans to businesses until June 30; (iii) a repayment moratorium on all existing loans, corporate and retail, until the end of this year, with a reprofiling of debt payment thereafter to avoid an increase in monthly payments; and, (iv) a cap on the average annual percentage rate (APR) on new unsecured consumer credit at the central bank base rate (currently, 0.9 percent) plus 5 percent.
On April 7, a new SME lending program was also announced (FGS GO!) with increased amounts and increase in the interest rate subsidy. The corporate bond purchase program (BFGS) remained in place but maturities of eligible bonds were extended and amount per business group was increased. The MNB intends to sterilize liquidity injected through both the FSG GO! and BFSG programs through a preferential deposit facility bearing a 4 percent interest rate.
Regarding macro-prudential measures, (i) the Foreign Exchange Coverage Ratio (FECR), which imposes a limit on the difference between forex-denominated assets and liabilities of credit institutions as a percent of total assets, was reduced from 15 to 10 percent; (ii) the additional capital buffer requirement for systemically-important banks will be temporarily eliminated as of July 1.
EXCHANGE RATE AND BALANCE OF PAYMENTS
The exchange rate has been allowed to adjust flexibly.disclosed.