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Hungary's economy since 1990

General government gross debt in Hungary amongst other countries and the EU

Reaching 1995, Hungary's fiscal indices deteriorated: foreign investment fell as well as
judgement of foreign analysts on economic outlook.[48] Due to high demand in import goods,
Hungary also had a high trade deficit [49] and budget gap, and it could not reach an agreement
with the IMF, either.[48][50] After not having a minister of finance for more than a month, prime
minister Gyula Horn appointed Lajos Bokros as Finance Minister on 1 March 1995. He
introduced a string of austerity measures (the "Bokros Package") on 12 March 1995 which
had the following key points: one-time 9% devaluation of the forint, introducing a constant
sliding devaluation, 8% additional customs duty on all goods except for energy sources,
limitation of growth of wages in the public sector, simplified and accelerated privatization.
The package also included welfare cutbacks, including abolition of free higher education and
dental service; reduced family allowances, child-care benefits, and maternity payments
depending on income and wealth; lowering subsidies of pharmaceuticals, and raising
retirement age.

These reforms not only increased investor confidence, [51] but they were also supported by
the IMF and the World Bank, [52] however, they were not welcome widely by the Hungarians;
Bokros broke the negative record of popularity: 9% of the population wanted to see him in
an "important political position" [53] and only 4% were convinced that the reforms would
"improve the country's finances in a big way" [48]

In 1996, the Ministry of Finance introduced a new pension system instead of the fully state-
backed one: private pension savings accounts were introduced, which were 50% social
security based and 50% funded.[52]

In 2006 Prime Minister Ferenc Gyurcsány was reelected on a platform promising economic
“reform without austerity.” However, after the elections in April 2006, the Socialist coalition
under Gyurcsány unveiled a package of austerity measures which were designed to reduce
the budget deficit to 3% of GDP by 2008.

Because of the austerity program, the economy of Hungary slowed down in 2007.

2008-2009 financial crisis

Declining exports, reduced domestic consumption and fixed asset accumulation hit Hungary
hard during the financial crisis of 2008, making the country enter a severe recession of -6.4%,
one of the worst economic contractions in its history.

On 27 October 2008, Hungary reached an agreement with the IMF and EU for a rescue
package of US$25 billion, aiming to restore financial stability and investors' confidence. [54]

Because of the uncertainty of the crisis, banks gave less loans which led to a decrease in
investment. This along with price-awareness and fear of bankruptcy led to a fallback in
consumption which then increased job losses and decreased consumption even further.
Inflation did not rise significantly, but real wages decreased.[55]

The fact that the euro and the Swiss franc are worth a lot more in forints than they were
before affected a lot of people. According to The Daily Telegraph, "statistics show that more
than 60 percent of Hungarian mortgages and car loans are denominated in foreign
currencies".[56] After the election in 2010 of the new Fidesz-party government of Prime
Minister Viktor Orbán, Hungarian banks were forced to allow the conversion of foreign-
currency mortgages to the forint.[57] The new government also nationalised $13 billion of
private pension-fund assets, which could then be used to support the government debt

Present-day Hungarian economy

The economy showed signs of recovery in 2011 with decreasing tax rates and a moderate 1.7
percent GDP growth.[59]

From November 2011 to January 2012, all three major credit rating agencies downgraded
Hungarian debt to a non-investment speculative grade, commonly called "junk status". [60][61]
In part this is because of political changes creating doubts about the independence of the
Hungarian National Bank.[63][60][61]

European Commission President José Manuel Barroso wrote to Prime Minister Viktor Orbán
stating that new central bank regulations, allowing political intervention, "seriously harm"
Hungary's interests, postponing talks on a financial aid package. Orbán responded "If we
don’t reach an agreement, we’ll still stand on our own feet."[57]

The European Commission launched legal proceedings against Hungary on 17 January 2012.
The procedures concern Hungary’s central bank law, the retirement age for judges and
prosecutors and the independence of the data protection office, respectively. [64][65] One day
later Orbán indicated in a letter his willingness to find solutions to the problems raised in the
infringement proceedings.[66] On 18 January he participated in plenary session of the
European Parliament which also dealt with the Hungarian case. He said "Hungary has been
renewed and reorganised under European principles". He also said that the problems raised
by the European Union can be resolved “easily, simply and very quickly”. He added that none
of the EC’s objections affected Hungary’s new constitution.[67][68]

Following the mild recession of 2012, the GDP picked up again from 2014, and based on the
Commission’s Winter 2015 forecast it was projected to have accelerated to 3.3%. The more
dynamic economic performance attributed to a moderately growing domestic demand and
supported the growth of gross fixed capital formation. The surge (3.8% in the first half of
2014), however was only achieved via temporary measures and factors, such as the stepped-
up absorption of EU-funds and the central bank’s Funding for Growth Scheme, which
subsidised loans for small-and medium-sized enterprises. [69] The fundaments of growth didn't
considerably change in 2015 as well - the government supported EU-fund transfers along
with the moderately successful central bank loans of economic revitalization - fueled the fair
GDP growth. However, from the beginning of 2016, the significantly shrunk base of available
EU-funds had an immediate impact on the country's performance. The disappointing
quarterly data showed a mere 0,9% hike beating most expectations. Therefore, the
government may need to revise its year-on-year growth in the upcoming months.

The past seven years: Hungary in numbers, 2010-2016

Máté Veres, research associate of Gazdaságkutató Zrt., published this study in Új Egyenlőség
at the beginning of the year. The article was translated by “Observer,” who added the
following notes:

This article offers a set of indicators to reveal the state of the Hungarian economy and
society. We think, however, that the situation is somewhat worse than Veres’s assessment
because there are additional detrimental factors not discussed here, e.g.:

 The very low investment rate as a percentage of GDP

 The budget deficit hidden in subsystems down to individual units like hospitals or
schools districts
 The consumption boost by the remitted earnings from abroad, which are to decline in
 The poor ratings of the Hungarian places of higher education, the outdated,
retrograde education model and policies, the very low number of people with IT or
foreign language knowledge, etc.

Analyses of these points will eventually be presented in another article. I’m grateful for the
work and care “Observer” took in translating this important article for us.


Analyzing the results of the second Orbán government [and third as from 2014] after seven
years of freedom fight and other kinds of struggle and hundreds of millions of euros from the
EU spent, it’s time to draw a picture of how the Hungarian economy and society are doing
compared to 2010 in the light of the latest figures available.

After [the election victory in] 2010 the government benches have been widely using the
already well known “past eight years” phrase. It was used by Fidesz and the Christian
Democratic politicians as their favored counter-argument when the opposition tried to
challenge government actions. The performance of the governments between 2002 and
2010 in many areas could have been criticized (as we did in our analyses), but in general the
“last eight years” argument has always been a simplistic communication tool, often used to
bypass substantive discussions. In our evaluation of the Fidesz government performance we
now follow a different path and instead of summary political statements we shall stay with
the facts and figures to show what the “past seven years” were like.

Seven years are already a sufficient horizon for an evaluation of the government’s
achievements. For this purpose, however, in addition to showing the changes in numbers, we
need to find explanations for the results, and therefore – where possible – to compare the
results with those of our regional competitors as well. So now we’ll consider some areas of
key importance to the future of the country.


It was 10.3% in 2010 and only 5% in 2016, according to the KHS (Central Statistics Office-
CSO), or 6.8%, according to Eurostat.

Apparently the situation has improved, but it is worth adding that the [2008 world financial]
crisis played a major role in the exceptionally weak 2010 numbers, while the much better
2016 numbers include both those working abroad and those fostered workers vegetating on
subsistence wages (USD 180/month).

The same factors underlay the Eurostat numbers showing a miraculous growth of
employment in Hungary (59.9% in 2010 and 68.9% in 2015). According to official figures we
caught up with the EU average, but without those working abroad and the fostered workers
we just caught up with the eastern [EU] member states. In any case, there is an
improvement, primarily due to the EU-funded, labor-intensive construction projects.


2010 – 36th place, in 2016 – 44th

Human development is an indicator introduced by the UNO, a concept of human well-being

wider than the GDP indicator. It is generated by averaging three numerical indicators: life
expectancy, education and standard of living (GDP Purchasing Power Parity per capita). In
this area we not only managed to fall significantly behind, but all our V4 [Poland, Czech
Republic, Slovakia and Hungary] regional competitors overtook us, while Poland was still
behind us in 2010.


EUR 7,844 mil in 2010, 5,683 mil in 2016

A clear success can be booked in this area. The composition of the debt is just as important
as its size, as the crisis taught a large part of the Hungarian middle class. Until 2010 the
household debt of the Hungarian population grew at a rate remarkable even by regional
standards, and in foreign currency, which was mainly due to the bad interest rate policy of
the Hungarian Central Bank (HCB) and to the lack of regulation. The central bank’s interest
rate policy between 2001 and 2007 encouraged the population to borrow in foreign


In 2010 the PD was HUF 20,420 billion or 78.8% of GDP. Seven years later, in 2016 it was
25,393 billion or 75.5% of GDP.
This figure has fluctuated during the second Orbán government. It had been over 80% GDP
too, but at the end of the year ‘with hundreds of tricks’ – the best known being the seizure of
the pension finds – they always managed a decrease from the previous year [the
government publishes and uses only a single figure – that of Dec. 30 th). There is a lot of
uncertainty as to whether the government can sustain the downward trend, given the scale
of the debt, but if it manages to keep the balance of payments at zero, the government can
eventually claim a clear victory on this front.


In 2010 the total was 54.1%; in 2016, 49.0% There is a sizable literature on the issue. The
differentiated and on average higher taxes on labor and/or profit are not at all problematic, if
they are used by the state to provide high-quality, accessible to all, health, education and
other services. This is evidenced year after year by the results of the economic systems of
Sweden, Norway, Denmark and Finland, known as the “Nordic model”, since the above-
mentioned countries have figured at the top of the lists in competitiveness, innovation and
the environment for decades. However, in Hungary things are developing in a direction
exactly opposite to the Nordic Model. This question is also interesting because the Fidesz
government proclaimed itself to be the government of tax cuts.

Social security expenses in the European Union, 2014

It is clear that if we look at the overall situation, the taxes on labor have decreased. Although
it’s worth adding that in international comparison while in 2010 we had the second largest
burden rate in the OECD, by now we managed to move up only by two places, occupying
fourth place from the bottom. This small success is mainly due to the introduction of a flat
personal income tax and its rate reduction to 16%.

However, it’s worth mentioning that the replacement of the progressive tax system used until
then by a flat tax rate opened a HUF 444 billion hole in the yearly budget and benefited only
the richest. In addition, never has labor in Hungary been burdened by such a wide variety of
taxes as today. Actually the situation here is the worst in the region. Meanwhile the
government promised a massive tax burden reduction in the medium term and a single-digit
company tax. There has been a long-standing debate about the need for a significant
reduction of the tax burden with regard to the competitiveness of the economy.

In any case, despite the 2010 promise, we surely didn’t get any closer to the “beer mat-sized
tax return” [as V. Orbán half-jokingly promised in opposition]. However, with the new flat and
extremely low 9% company tax rate, another 2010 slogan – “we shall fight the offshore
knights” – now seems to have morphed into “join the offshore knights’ race.” Similar to the
effect of the flat-rate personal income tax, now once again the richest (and the big
companies) will do really well as not the Hungarians, but the multinationals, such as General
Electric (GE), already did under a special agreement with the government.

Between 2004 and 2010 the growth amounted to 9.9% or in absolute terms USD 114.2
billion to 129.4 billion (a 15.2 billion difference). Between 2010 and 2015, in the same length
of time, the Orbán government boosted the GDP from USD 129.4 billion to 138.8 billion (a
9.4 billion difference). The right side of politics clearly underperformed. These numbers,
however, may be deceptive because much depends on external factors. But if you just look at
our competitors in the region, save for the Czechs and Bulgarians almost all Eastern
European member states, even Romania, performed better.


The [public transport] ticket price in Budapest in 2010 was 320 Ft., in 2016 – 350. The ticket
prices in the region were as follows in 2016. Sofia – 158 Ft., Bucharest – 90 Ft., Warsaw – 240
Ft., Prague – 275 Ft. So the situation remains unchanged, we are the most expensive.


During the Gyurcsány government overpricing [in public projects] gained notoriety, but there
are still no authoritative studies regarding its extent. Interestingly, according to Zsuzsanna
Németh, Minister of Development 2010-2014, the Hungarian freeway construction cost per
kilometer had decreased steadily during the Gyurcsány government, and in 2010 was 1.8
billion Ft. on average. Compared to this, according to the same Ministry led by Zsuzsanna
Németh, the freeway construction unit cost had increased to 2.3 billion per kilometers in
2013. But there were also sections where the costs reached almost 4 billion forints.


[Or how many minutes you have to work for a Big Mac]

Crisis or not, the change here is clearly positive: in 2009 – 59 min., in 2015 only 44 min. That
said, we still haven’t overtaken anyone in the region, we are on par with Bucharest. It is also
important to point out that the Big Mac index focuses on cities, and while Budapest is clearly
catching up, the country is dropping behind compared to the other EU Member States. And
this worsening trend continued during the past seven years just as before.


In 2010 144%, in 2014 143% where 100% means the EU average

Only Budapest is above the EU average, the second best county – Győr-Moson-Sopron stands
at only 77%. In the light of the foregoing it is worthwhile showing also how the best
performing Hungarian regions – where the situation in this area has worsened since 2010 –
compare to our V4 competitors. In 2014 in the same category Prague was stood at 173%,
Bratislava 187%, Warsaw 197%. Notably in the case of Budapest, Pest County is also part of
the region.


In 2010 24.5%, in 2015 22%

The more food is produced by local, domestic producers the better, both environmentally
and economically. According to a relatively recent Corvinus University study, positive, if
modest changes have taken place in this area.


It is so far growing in the second Orbán government period, due in part to last year’s
persistently low inflation, the third year in a row, and, on the other hand, partially due to the
inflation-indexation of pensions introduced by the Gyurcsány government and which during
the Fidesz government was often surpassed through the use of small tricks.


In 2008 the gross benefit was HUF 28,500, in 2016 just as much. In international comparison,
this is dramatically low.


In 2009 it was USD 9,500, in 2015 – 9,149.

The biggest change in the area of earnings in the past period, as mentioned before, was the
flat personal income tax, which benefitted primarily the affluent. At first glance the above
seems even a decrease, but due to the significantly weakened forint exchange rate in the
period the balance is rather a positive one. This fact doesn’t make for any exuberant joy
because according to the OECD data, admittedly in need of updating, the approx. USD 9,500
earnings (just as a few years ago) was sufficient only for the last place among the EU member


In 2010 – 3 million, in 2016 – 3.6-3.8 million

In addition to this terribly high number, perhaps it is most important to note that after nearly a
quarter of a century, in 2011 the CSO stopped publishing any figures about exactly how many
people live below the poverty line. (The Policy Agenda think tank, however, has calculated
that by 2015 the number has grown to 41.5%. See our article on all of this.)

Actual Individual Consumption in the European Union, 2014

Furthermore, the CSO had calculated that at least 87,351 Ft. monthly net earnings were
required (in 2014) for living at a subsistence level. In comparison the net minimum wage in
2016 was still 73,815 Ft. In the first case it seems there was finally a move forward. Thanks to
the tenacious struggle of the trade unions in 2018 the minimum wage will reach the
subsistence level of around 90,000 Ft. However, thanks to the far higher 35% tax burden, in
net terms the minimum wage is still light years behind that of our competitors in the region
regarding the increases carried out between 2008 and 2016. In addition, Hungary has the
highest proportion (72.2%) across the EU of households that wouldn’t be able to pay any
unexpected expense.


In 2009 – 70,971, in 2014 – 66,000

The population has been declining steadily since 2010, but we surely aren’t so many fewer.
Actually there are more elderly. Therefore we need more, not fewer beds.


Not only compared to 2010, but in fact never has any government since 1990 spent so little
on healthcare, as a percentage of GDP, as in the past several years. And this is not only a
basic requirement for a more successful functioning of the economy but also a factor that
could have improved significantly the overall mood of the whole country. Recent research
has shown that the overall satisfaction level in a country is not best raised by increasing the
earnings of the inhabitants but by spending relatively larger amounts on problems of well-
being. There is also a demand for it. According to the 2016 European Social Survey the
Hungarian society is in a terrible state compared to the other European countries: in Hungary
people consume the smallest quantities of fruits and vegetables, Hungarian women are
moving the least, compared to the Hungarian men only Lithuanians smoke more, compared
to the Hungarian men only more Czechs are overweight, Hungarian women are the most
overweight, we have the largest proportion of men in poor or a very poor state of health,
compared to the Hungarian women only the Spanish women are in a worse state of health,
among the Hungarian men are the most showing signs of depression, and the Hungarian
population, both men and women, is most affected by cancer. After that, perhaps it’s not
surprising that we visit doctors most frequently among OECD countries.


Similar to the health care case, counting from 1990 we have never spent so little of the GDP
in this sector as during the Orbán government. Yet the word education could safely be
replaced by “future,” since it is basically influenced by the country’s medium and long-term
competitiveness. We are rank penultimate in Europe [in spending], so such investment here
would bring the biggest return among the OECD countries. The results are visible: we are
sixth from the bottom in the OECD in the number of researchers employed in the country;
there haven’t been so few studying in higher education in the last seventeen years. We spent
the least for developing computer skills, and our students have the largest number of school
hours for non-essential knowledge (e.g., ethics [compulsory alternative to religion], etc.) as
opposed to essential ones (e.g. reading, writing, literature, mathematics, natural sciences,
second or other language). In view of the above, the recently published PISA results, which
understandably caused an outrage, probably represent only the tip of the iceberg.

One of the few positive steps in the past few years is that those who cannot find work are,
finally, offered free training, but the training offered by the National [Vocational] Training
Register (Országos képzési jegyzék) is unlikely to boost the highest added value production
areas. In addition, the participants’ livelihood is not guaranteed during the course; hence the
training can only be used by jobseekers with a better financial cushion or those enjoying a
patronage. Improving job qualifications is needed to raise our incredibly low average salary,
which already inhibits economic growth.


In 2009 – 46th place, in 2015 – 50th place

Even the people in Saudi Arabia, Botswana, Qatar and four-fifths of our region feel their
governments are less corrupt.


No previous government has shown less interest in this area. The Orbán government’s
response to the day-by-day worsening problem of global warming was to abolish the
Environment Ministry and to do nothing about the few concrete promises it made before the
election – including the creation of a green bank. In the meantime, they managed to earn the
glory of the “tree-felling government” title, since probably no one has cut down so many
trees as they have done in the last seven years in Budapest, and they have plans for more.
Moreover, we are perhaps the only country in the world to impose taxes on solar panels
while indebting Hungary by a loan equal to at least 10% of GDP – if not more – for the sake of
a twentieth-century technology for [Russian nuclear reactor blocks] Paks 2, which, in the
bargain, will surely never produce a return.

Meanwhile, despite all the flag waving and freedom fighting the external exposure of the
Hungarian economy has not been reduced at all. And here it is not primarily the foreign
currency denominated debt segment that counts most, nor the export-import volume, which
reached 200% of GDP, but the fact that less than half of the exported added value is created
in Hungary. In other words, more than 50% of the added value produced in Hungary is by
foreign-owned companies, which is unique in the European Union. It is no surprise that of
the EU money arriving here for business development – after the government has carved off
its significant slice – almost 70% is awarded to multinationals.

Such a level of foreign investor influence is extraordinary even by regional standards,

although in Eastern Europe we are all rowing in the same boat, i.e. in what the literature calls
a dependent market economy. That is, our economies are wholly dependent on Western
investments. This is particularly true for the car manufacturing brought to Hungary, because
it accounts for more than 20% of Hungarian exports, and this situation hasn’t changed since
the year 2000. Meanwhile a leading Fidesz politician says that nothing can be done because
“Hungary is a determined country, where it’s impossible to pursue other economic policies.”
But it was precisely the Orbán regime which showed that it is. Over the last fifty years
countries such as South Korea, Taiwan and Singapore went through economic development
with substantial state assistance, which took them to where we are heading today. Big
companies like Samsung, LG and Hyundai were heavily subsidized by the state, which in
return set certain export expectations, so these companies were forced to continue spending
on innovation. While it is a widespread view that the international rules made impossible
this type of government intervention, we can see that the Orbán regime can support their
oligarchs without any sanctions. The problem is that instead of innovation the regime
expects only political loyalty. Despite its references to them as a model, none of the East
Asian models’ components has been employed.

In light of the above it is not surprising that there have never been so many who wanted to
emigrate from the country. Meanwhile the middle class is eroding and the differences in
wealth between the richest and the poorest are increasing.

There is money available though, since up to now the government has spent HUF 300 billion
on state companies and a further HUF 100 billion on its own (i.e. our) soccer pet. Overall, we
spend four times more on this prime minister’s mania than on road maintenance, while the
number of spectators is steadily declining. There are other outlays that went wrong too – the
György Matolcsy-led National Bank has had HUF 250 billion pumped into dubious
foundations or spent for the purchase of art objects. In addition, another HUF 850 million
was sunk into the Felcsút narrow gauge railway, never to produce any return, and HUF 6.7
billion credit was extended to Andy Vajna for the purchase of TV2. Speaking of Andy Vajna, it
is worth highlighting the greatest of all items, in regard to which the government didn’t do
anything, namely the offshore [knights racket]. Moreover, Hungary is actually moving in this
direction. Even in the face of the couple of years old study finding that the almost
unfathomable amount of USD 247 billion of untaxed income has left the country in past
decades. In the course of this offshore racket we have suffered the second largest losses in


Looking at the numbers the government could demonstrate quite serious achievements
compared to 2010, primarily in the area of balancing the budget and public debt. The GDP
growth rate could have been included but for the fact that this growth was due mainly to the
accelerated EU investments and not to a better performance of the domestic economy. In
fact our productivity has been stagnant since 2008.

On the other hand, the social inequalities have increased dramatically during these seven
years. It is unlikely that these short-term favorable macro-economic data can be sustained in
the long term, mainly because the Hungarian society’s human capital indicators have
significantly deteriorated as a result of the dramatic underfunding of the public subsystems
(healthcare, education, social policy, public transport). That is, the economic growth is due to
a great extent to the EU investment funds and the short-term budgetary balance to huge
austerity measures. Both are unsustainable.

Hungary Economic Outlook

January 9, 2018

Positive economic data continues to flow in. GDP growth jumped in the third quarter, as
government spending turned positive. In addition, investment continued to soar thanks to
strong inflows of EU funds, while a tight labor market supported healthy household
consumption in the quarter. Available data for the fourth quarter is also bright. Exports
surged, and the unemployment rate fell in October. Economic sentiment rose notably in
December. The healthy economy will likely help Prime Minister Viktor Orbán in the upcoming
spring general election. Orbán’s right-wing Fidesz party is leading in early polls and is
expected to come out on top in the April or May vote. Immigration will likely be a key theme
in the pre-election debate. Orbán has been an outspoken critic of the EU’s immigration policy
and has clashed with European leaders over his refusal to take in refugees.

Hungary Economic Growth

Rising wages, a favorable global backdrop and accommodative monetary policy should drive
solid growth in 2018. FocusEconomics panelists project the economy will expand 3.5% in
2018, which is up a notch from last month’s forecast. For 2019, the panel sees growth of