« ECONOMICS N o v Hungary e OECD m b Special Features: Structural Policies e Economic Surveys r Coping with Ageing 2 0 0 0 Latest Surveys Available "Partners in Transition" Hungary Australia, January 2000 Slovak Republic, February 1999 Austria, May 1999 Belgium-Luxembourg, January 1999 Non-Member Economies Canada, August 2000 Baltic States, February 2000 Czech Republic, February 2000 Bulgaria, April 1999 Denmark, July 2000 Romania, February 1998 Finland, July 2000 Russian Federation, March 2000 ECONOMICS France, July 2000 Slovenia, May 1997 Germany, November 1999 Greece, December 1998 Hungary, November 2000 O Iceland, December 1999 E Ireland, May 1999 C Italy, May 2000 D Japan, November 1999 E c Korea, September 2000 o Mexico, July 2000 n o Netherlands, March 2000 m New Zealand, April 1999 ic Norway, February 2000 S u Poland, January 2000 r v Portugal, October 1999 e Spain, January 2000 y s Sweden, July 1999 Switzerland, July 1999 H Turkey, June 1999 U N United Kingdom, June 2000 G United States, May 2000 A R www.oecd.org Y ISSN 0376-6438 ISBN 92-64-17530-X 2000 SUBSCRIPTION 10 2000 30 1 P (18 ISSUES) FF 2 980 £300 US$485 -:HSTCQE=V\ZXUX: DM 895 ¥ 57 600 2000, No.18 November 2000 1623en.fm Page 1 Wednesday, June 21, 2000 10:29 AM © OECD, 2000. © Software: 1987-1996, Acrobat is a trademark of ADOBE. All rights reserved. OECD grants you the right to use one copy of this Program for your personal use only. Unauthorised reproduction, lending, hiring, transmission or distribution of any data or software is prohibited. You must treat the Program and associated materials and any elements thereof like any other copyrighted material. All requests should be made to: Head of Publications Division Public Affairs and Communication Directorate 2, rue André-Pascal, 75775 Paris Cedex 16, France. OECD ECONOMIC SURVEYS 1999-2000 Hungary ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed: – to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; – to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development; and – to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became Members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), theCzech Republic (21st December 1995), Hungary (7th May 1996), Poland (22ndNovember 1996) and Korea (12th December 1996). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention). Publié également en français. © OECD 2000 Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through the Centre français d’exploitation du droit de copie (CFC), 20, rue des Grands-Augustins, 75006 Paris, France, Tel. (33-1) 44 07 47 70, Fax (33-1) 46 34 67 19, for every country except the United States. In the United States permission should be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400, 222Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: http://www.copyright.com/. All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue André-Pascal, 75775 Paris Cedex 16, France. Table of contents Assessment and recommendations 9 I. Recent trends and prospects 25 Overview 25 Growing exports contribute to an acceleration in GDP 25 Labour market conditions continue to improve 29 The disinflation process pauses temporarily 32 The external balance stabilises 36 The short-term outlook 43 II. Macroeconomic management 47 Monetary policy 47 Fiscal policy 57 Assessment 75 III. Progress in structural reform 79 Product markets 85 Financial markets 97 Labour market policy 112 Public sector 124 IV. Coping with Ageing 155 Introduction 155 The scale of the demographic problem 155 Public support for the elderly 161 The economic implications of ageing under existing institutional arrangements 172 Policy priorities 185 Summing up 194 Notes 198 Glossary 208 Bibliography 210 © OECD 2000 4 OECD Economic Surveys: Hungary Annexes I. Operations of the NBH 214 II. General government accounts: cash-flow versus accrual concepts 217 III. Potential output growth until 2005 218 IV. Medium-term projections 220 V. Calendar of main economic events 222 Statistical Annex and Structural Indicators 225 (cid:127)(cid:127)(cid:127)(cid:127)(cid:127) Boxes 1. The government’s2000 anti-inflation programme 36 2. Accounting for trade on an accruals basis in the balance of payments 42 3. Changes in the compulsory reserve requirement 55 4. Off-budget quasi-fiscal instruments 58 5. The Széchenyi plan 72 6. Postabank 101 7. Non-bank credit institutions 105 8. Chronology of major tax reforms 125 9. Tax policy and EU accession 142 10. Managed-care pilot project 147 11. The impact of different demographic assumptions 160 12. The social-security pension system 169 13. The privately managed pension funds 173 14. The Romani minority 191 15. Increasing prosperity in an ageing society: an overview of recommendations 195 Tables 1. Quarterly gross domestic product 27 2. Quarterly gross domestic product bysector 29 3. Regional labour market developments 31 4. Earnings peremployee 32 5. Current account ofthebalance ofpayments 40 6. Merchandise trade balance onacash-flow andaccruals basis 41 7. Financial account ofthebalance ofpayments 43 8. Capital flows inthebalance ofpayments 44 9. Short-term projections 45 10. Money andcredit 56 11. Alternative measures ofthegeneral government balance 60 12. General government accounts, OECD basis 61 13. Gross public debt 62 14. Consolidated general government revenue andexpenditure, OECD basis 64 15. Central government accounts – unconsolidated, GFS basis 67 © OECD 2000 Table of contents 5 16. Balance ofthesocial security funds, GFS basis 69 17. Local government accounts, GFS basis 70 18. The medium-term budget outlook 73 19. Structural surveillance 80 20. Companies managed byÁPV Rt., bysector 86 21. Geographical breakdown oftrade flows 90 22. Outstanding loans byrisk category 101 23. Pre-tax net earnings inthebanking sector 102 24. Breakdown ofbanking assets byownership 103 25. Central andeastern European stock markets 106 26. Monthly earnings byeducational attainment intheprivate andpublic sectors 115 27. The structure oftaxation bytype oftax 127 28. Social security contributions oftop wage earners 130 29. VAT productivity andeffective VAT rates 131 30. Tax incentives 133 31. Required pre-tax rates ofreturn tocapital inmanufacturing (cost ofcapital) 135 32. Tax arrears 138 33. Fertility andlife expectancy 156 34. Participation inmandatory private pension funds 167 35. Growth rates ofemployment, productivity andGDP 176 36. Membership andassets ofHungarian pension funds 177 Annexes A1. Instruments oftheNBH applied onaregular basis 215 A2. Sensitivity analysis 219 A3. Direct costs oftax andspending measures 221 Statistical Annex and Structural Indicators A. Selected background statistics 226 B. Supply anduse ofresources 227 C. Labour market indicators 228 D. Costs andprices 230 E. Monetary indicators 231 F. Balance ofpayments 232 G. Financial markets 233 H. Non-financial corporations withdouble entry book-keeping 234 Figures 1. Macroeconomic performance 26 2. The climate in the private sector 28 3. Employment, unemployment and the labour force 30 4. Consumer price developments 33 5. Components of inflation 35 6. Trade performance 37 7. Customs versus balance of payments trade data 38 8. Cumulative current account deficit 39 9. The Forint in its fluctuation band 48 © OECD 2000 6 OECD Economic Surveys: Hungary 10. Interest rate developments 50 11. Monetary conditions 51 12. Yield curves 53 13. Exchange rate interventions 54 14. Cumulative central government balance 63 15. Foreign direct investment by region 88 16. Real credits 98 17. Sectoral interest rates 100 18. Liquidity of the Budapest Stock Exchange 107 19. Regional stock market indices 107 20. Regional labour markets 113 21. Wage drift 114 22. Minimum wage developments 116 23. The overall tax burden in OECD countries 126 24. Distribution of the implicit VAT subsidy 132 25. Average tax rates by level and type of income 136 26. Life expectancy 145 27. Population scenarios 158 28. Demography and employment 159 29. Employment/population ratios for men and women 162 30. Pension benefit recipients by type of benefit 164 31. Dependency ratios 178 32. Demand for health services 180 33. Social security deficit: sensitivity to employment and productivity growth 181 34. Social security deficit: sensitivity to demographic assumptions 183 35. PAYG balance with lower contribution rates 184 36. The evolution of healthcare supply 187 37. Sensitivity of the PAYG balance to revenue-enhancing reforms 192 © OECD 2000 BASIC STATISTICS OF THE REPUBLIC OF HUNGARY (1999) THE LAND Area (sq. km.) 93 036 Arable land (sq. km.) 47 080 THE PEOPLE Population (thousands, end year) 10 043 Population of major cities (thousands): Urban population (per cent of total) 64 Budapest 1 812 Rural population (per cent of total) 36 Debrecen 204 Projected population in 2005 (1995 = 100) 96 Miskolc 172 Employment (thousands) 3 811 Employment by sector (per cent of total): Unemployment rate Agriculture 7.1 (per cent of civilian labour force) 7.0 Industry 34.0 Participation rate of 15-64 year olds 59.8 Services 58.9 THE PARLIAMENT Parliament 386 seats Number of political parties in Parliament 6 (elections of May 1998) Share of seats held by governing coalition (per cent) 53 Next election 2002 PRODUCTION GDP (Ft billion, current prices) 11 436.5 GDP per capita ($, average official exchange rate) 4 808.0 Consumption (private,per cent of GDP) 50.9 Gross fixed capital formation (per cent of GDP) 23.8 PUBLICFINANCE1 Central government budget balance (per cent of GDP) –2.9 General government revenue (per cent of GDP) 41.8 General government blalance (per cent of GDP) –3.7 FOREIGNTRADE Exports of goods and services (per cent of GDP) 52.8 Imports of goods and services (per cent of GDP) 55.3 Official reserves (average, incl. gold, SDR billion) 7.1 Total gross external debt ($ billion) 29.3 Total gross external debt (per cent of GDP) 59.7 THE CURRENCY Monetary unit: Forint Forints per $: Official average, 1999 237.29 June 2000 273.66 1. Based on official Hungarian cash-flow accounts. This Survey is based on the Secretariat’s study prepared for the annual review of Hungary by the Economic and Development Review Committee on 5September2000. (cid:127) After revisions in the light of discussions during the review, final approval of the Survey for publication was given by the Committee on 9October2000. (cid:127) The previous Survey of Hungary was issued in February1999.