Although Hungary enjoyed one of the most liberal and economically advanced economies of the former Eastern bloc, both agriculture and industry began to suffer from a lack of investment in the 1970s, and Hungary's net foreign debt rose significantly--from $1 billion in 1973 to $15 billion in 1993--due largely to consumer subsidies and unprofitable state enterprises. In the face of economic stagnation, Hungary opted to try further liberalization by passing a joint venture law, enstating an income tax, and joining the International Monetary Fund (IMF) and the World Bank. By 1988, Hungary had developed a two-tier banking system and had enacted significant corporate legislation which paved the way for the ambitious market-oriented reforms of the post-communist years.
The Antall government of 1990-94 began market reforms with price and trade liberation measures, a revamped tax system, and a nascent market-based banking system. By 1994, however, the costs of government overspending and hesitant privatization had become clearly visible. Cuts in consumer subsidies led to increases in the price of food, medicine, transportation services, and energy. Reduced exports to the former Soviet bloc and shrinking industrial output contributed to a sharp decline in GDP. Unemployment rose rapidly--to about 12% in 1993. The external debt burden, one of the highest in Europe, reached 250% of annual export earnings, while the budget and current account deficits approached 10% of GDP. In March 1995, the government of Prime Minister Gyula Horn implemented an austerity program, coupled with aggressive privatization of state-owned enterprises and an export-promoting exchange raw regime, to reduce indebtness, cut the current account deficit, and shrink public spending. By the end of 1997 the consolidated public sector deficit decreased to 4.6% of GDP-- with public sector spending falling from 62% of GDP to below 50%--the current account deficit was reduced to 2% of GDP, and government debt was paid down to 94% of annual export earnings.
The Government of Hungary no longer requires IMF financial assistance and has repaid all of its debt to the fund. Consequently, Hungary enjoys favorable borrowing terms, and its sovereign foreign currency debt issuances carry investment-grade ratings with positive outlooks from all major credit-rating agencies. In 1995 Hungary's currency, the forint (HUF), became convertible for all current account transactions, and subsequent to OECD membership in 1996, for almost all capital account transactions as well. Since 1995, Hungary has pegged the forint against a basket of currencies (in which the German mark is 70% and the U.S. dollar 30%), and the central rate against the basket is devalued at a preannounced rate, currently set at 0.8% per month. The government privatization program will end on schedule in 1998: 80% of GDP is now produced by the private sector, and foreign owners control 70% of financial institutions, 66% of industry, 90% of telecommunications, and 50% of the trading sector.
After Hungary's GDP declined about 18% from 1990 to 1993 and grew only 1%-1.5% up to 1996, strong export performance has propelled GDP growth to 4.4% in 1997, with other macroeconomic indicators similarly improving. These successes allowed the government to concentrate in 1996 and 1997 on major structural reforms such as the implementation of a fully funded pension system, reform of higher education, and the creation of a national treasury. Remaining economic challenges include reducing fiscal deficits and inflation (expected to fall to 13% by the end of 1998), maintaining stable external balances, and completing structural reforms of the tax system, health care, and local government financing. The overriding goal of Hungarian economic policy, however, will be to prepare the country for accession to the European Union at the earliest possible date. Although many challenges remain, the prospects of EU membership with the next decade are excellent.
Prior to the change of regime in 1989, 65% of Hungary's trade was with Comecon countries. By the end of 1997, Hungary had shifted much of its trade to the West. Trade with EU countries and the OECD now comprises over 70% and 80% of the total, respectively. Germany is Hungary's single most important trading partner. The U.S. has become Hungary's sixth-largest export market, while Hungary is ranked as the 72d largest export market for the U.S. Bilateral trade between the two countries increased 46% in 1997 to more than $1 billion. The U.S. has extended to Hungary most-favored-nation status, the Generalized System of Preferences, Overseas Private Investment Corporation insurance, and access to the Export/Import Bank.
With about $18 billion in foreign direct investment (FDI) since 1989, Hungary has attracted over one-third of all FDI in central and eastern Europe, including the former Soviet Union. Of this, about $6 billion came from American companies. Foreign capital is attracted by skilled and relatively inexpensive labor, tax incentives, and a good telecommunications system.
GDP: purchasing power parity - $134,7 billion (2002 est.)
GDP - real growth rate: 3.2% (2002 est.)
GDP - per capita: purchasing power parity - $13,00 (2002 est.)
GDP - composition by sector:
agriculture:
4%
industry:
34%
services:
62% (2000 est.)
Population below poverty line: 9% (1993 est.)
Household income or consumption by percentage share:
lowest 10%:
4%
highest 10%:
21% (1998)
Distribution of family income - Gini index: 24 (1998)
Inflation rate (consumer prices): 5.3% (2002 est.)
Labor force: 4.2 million (1997)
Labor force - by occupation: services 65%, industry 27%, agriculture 8% (1996)
Unemployment rate: 5.8% (2002)
Budget:
revenues:
$13 billion
expenditures:
$14.4 billion, including capital expenditures of $NA (2000 est.)
Industries: mining, metallurgy, construction materials, processed foods, textiles, chemicals (especially pharmaceuticals), motor vehicles
Industrial production growth rate: 3.1% (2002 est.)
Electricity - production: 33.436 billion kWh (2000)
Electricity - production by source:
fossil fuel:
59%
hydro:
1%
nuclear:
40%
other:
0% (2000 est.)
Electricity - consumption: 35.095 billion kWh (2000)
Electricity - exports: 1.2 billion kWh (2000)
Electricity - imports: 5.2 billion kWh (2000)
Agriculture - products: wheat, corn, sunflower seed, potatoes, sugar beets; pigs, cattle, poultry, dairy products
Exports: $31.4 billion (f.o.b., 2002)
Exports - commodities: machinery and equipment 57.6%, other manufactures 31.0%, food products 7.5%, raw materials 1.9%, fuels and electricity 1.9% (2001)
Exports - partners: Germany 34.9%, Austria 8.7%, Italy 5.9%, US 5.6% (2001)
Imports: $33.9 billion (f.o.b., 2002)
Imports - commodities: machinery and equipment 51.6%, other manufactures 35.3%, fuels and electricity 8.2%, food products 2.9%, raw materials 2.0% (2001)
Imports - partners: Germany 26.4%, Austria 7.9%, Italy 8.3%, Russia 6.8% (2001)
Debt - external: $31.5 billion (2002 est.)
Economic aid - recipient: ODA $250 million (2000)
Currency: 1 forint (HUF)
Exchange rates: forints per US dollar - 275.920 (January 2002), 286.490 (2001), 282.179 (2000), 237.146 (1999), 214.402 (1998), 186.789 (1997)
Fiscal year: calendar year