Hungary caught in the economic whirlwind after registering tremendous growth for several years. Foreign investments have dropped drastically and even gone down from the levels of the neighboring countries including Romania and Slovakia.
Most of the eastern European countries are affected by global slow down and related issues, but among them Hungary is the worst hit by a slew of issues stemming from poor governance. Hungarian public finances have been built mainly on a sharp increase in taxes by over-burdening the public.
Mr Gyurcsany’s government has also delivered some unpopular cuts in welfare entitlements. Excess revenue in 2007 amounted to Ft362bn (US$2.1bn), of which Ft152bn was obtained through income and social tax receipts. A crackdown on tax evasion netted Ft80bn more than the target level.
In a recent referendum, people slammed the government policies when over 80% rejected charges for doctors’ visits, hospital stays and tuition fees in higher education.
The prime minister, Ferenc Gyurcsany, a former communist youth leader turned multi-millionaire, has exactly a year to put the economy back on track to gain the confidence of the people, since the public election will be due in 2010. He was never able to recover from his confession of lying of Hungary’s economic health way back in 2006. Even though the budget deficit has fallen from 9.4% in 2006 to 5.6% in 2007 and likely come down again current year, the referendum will keep private health insurers and other possible reforms at bay.
Hungary’s politicians are severely criticized for their attachment to petty political mileage and not converting the business opportunities created by the EU. Where as the little known neighbor Slovakia is making significant economic strides and hopes to join the euro tentatively next year. Hungary’s adoption of euro would not be earlier than 2014 and this makes them more economically vulnerable.