Books on Hungary
% of GDP
Update No: 105 - (30/01/06)
D-Day is in April
The next parliamentary ballot in Hungary is scheduled for April 2006. Nothing
concentrates the mind better, said Dr Johnson, than the prospect of one's own
Naturally Prime Minister Ferenc Gyurcsany is keen to assess the mood of the
More Hungarians are satisfied with him, according to a poll by Gallup. 40 per
cent of respondents have a positive opinion of the prime minister's performance,
up three points since November.
Gyurcsany - a member of the Hungarian Socialist Party (MSZP) - became the
European country's head of government in August 2004, following the resignation
of Peter Medgyessy after a cabinet dispute. Gyurcsany had previously served as
In 2004, Hungary's fiscal deficit was 5.3 per cent of the country's Gross
Domestic Product (GDP). The European Central Bank has set a fiscal deficit limit
of 3.0 per cent to allow countries to adopt the single European currency.
Gyurcsany has set specific tasks for this year, declaring, "Our aim today
is (to adopt the euro) in 2010, for which we will have to do many things in
2006, 2007 and 2008." The prime minister also vowed to enact reforms in
state administration, health care and local government in the first 100 days of
a new mandate, should he obtain it.
Hungary PM Vows Extensive State Administration Reform After Polls
Gyurcsany vowed on January 9 to launch extensive and dynamic state
administration reforms after this spring's general elections.
Gyurcsany has said previously that public administration, health care and
education will be key reform targets. "The reform of the state
administration is absolutely needed and our aim is to bring about the most
intensive and dynamic phase of this process since the end of communism,"
Gyurcsany told a meeting of administrative state secretaries.
The premier added that his government has already started preparations for the
reforms in the past months. "Our aim is to ensure that the next government
will only have to introduce these measures and finish the process by the end of
2006," Gyurcsany said.
The prime minister pledged not to enter into any political bidding over reducing
the number of employees working in state administration. "I don't believe
it's fair or appropriate to demand the halving of the number of state
administrative employees," Gyurcsany said. However he wasn't specific on
what sort of financial or personnel cuts his government would seek.
Administrative expenses at Hungary's ministries have decreased from 83 billion
forints (US$403.4 million) in 2002 to HUF66 billion by 2006, which means that
they'll have dropped 50% in real, or inflation-adjusted, terms, Gyurcsany said.
"It's my firm belief that further reducing administrative costs is
impossible under the current structure," Gyurcsany added.
The ultimate aim of the reform is to introduce the best practices used in the
business world into state administration, Gyurcsany added.
S&P issues Hungary warning
Leading credit rating agency, Standard & Poor's (S&P) issued Hungary
with a final warning recently by placing its long-term debt rating of A- on a
negative outlook. The agency cited mounting fiscal challenges as the reason for
the change in its outlook, echoing similar concerns from other ratings agencies,
Budapest Business Journal reported.
Across the board, macroeconomic analysts covering Hungary stated that the
negative market reaction and the weakening of the forint against the Euro would
be temporary, but stressed that a future downgrade post election is now looking
more likely, and that the move should be taken as a clear stark warning to
Hungary's next government.
"The outlook revision reflects the increasing downside risks to Hungary's
public finances, as evidenced by high general government deficits and quickly
rising government debt figures," wrote S&P credit analysts, Kai
Stukenbrock. "Fiscal deficits also contribute to consistently high current
account deficits, and together these pose a risk to macroeconomic
stability," he added.
Hungary's December 2005 convergence program foresees a swift reduction in
deficits to 3.4% of GDP by 2008, despite simultaneous cuts in taxes and social
security contributions. However, an S&P statement noted that both the
convergence program and the government's agenda lack concrete structural
measures necessary to bring about the required swift decrease in the
General elections in Hungary scheduled for this April, and local elections in
October, will delay progress in fiscal consolidation, and neither of the two
main political parties has presented a coherent strategy to address budgetary
imbalances following the elections, S&P continued. The rating agency said it
expects the 2006 deficit to reach up to 10.7% of GDP, based on worsening fiscal
fundamentals, but also including large one-off expenditure items. "The
ratings are likely to be lowered if no signs of a significant and sustained
deficit and debt reduction strategy energy after the general elections in April
2006," noted Stukenbrock.
The S&P press release went on to state that a lack of willingness to
resolutely address structural budgetary problems is likely to keep deficits
high, gradually declining to 5.5% by 2009. Gross general government debt levels
will continue to increase rapidly, reaching 69% in 2009, from 60% in 2004, it
Accession to the euro zone is now unlikely to take place before 2014, according
to S&P, which argued that unsustainable fiscal deficits and uncertain
consolidation prospects risk fuelling external imbalances that leave the forint
vulnerable, and undermine confidence in macroeconomic stability. Accordingly,
S&P noted, this poses an increasing risk for growth and investment
prospects, as well as for the inflation outlook.
"The negative outlook could revert to stable if comprehensive structural
measures were to be implemented that would ensure the sustainable reversal of
the upward trend in the government debt ratio," added Stukenbrock.
Bosnia rejects Mol/INA purchase offer
According to a Reuters report the parliament of Bosnia's Muslim-Croat federation
rejected a government decision to sell a majority stake in fuel retailer
Energopetrol to the consortium of Hungary's Mol and Croatian INA on January
Energopetrol has 65 filling stations and a 15 per cent share of the Bosnian
market. Federation Prime Minister, Ahmet Hadzipasic, said the government would
continue talks with the Mol/INA consortium but was not optimistic. He said a
bankruptcy procedure for Energopetrol would be launched at the end of February.
The Bosnian government chose a bid submitted by a consortium of Mol and
Croatia's INA in a tender for a 67 per cent stake in Energopetrol in May last
year. Negotiations stalled, however, in the summer after Mol and INA rejected
the Bosnian government's proposal for the two oil companies to pay more up
front, but eventually continued in October.
In October the Bosnian government agreed with Mol and INA that the two may
acquire 67 per cent of Energopetrol, if they invest 75 million Euro in the
company, retain its 1,060 employees over the next three years and pay off
Energopetrol's debts, which stand at 30 million Euro.
MOL to expand oil production in Russia
Hungarian oil and gas company MOL plans to expand its oil production business in
Russia, and is not ruling out cooperating with RussNeft, which is already one of
the company's partners, and also with LUKoil, MOL managing director, Sandor
Fasimon, said, Interfax News Agency reported in Moscow.
"Yes, we have plans for the Russian Federation, I do not rule out that this
may be with RussNeft, with LUKoil. Let's see what opportunities there will
be," he said. Fasimon said that the company's strategy is to work in other
countries with local partners. He said that Russneft has been the company's
partner in the Zapadno-Malobalykskoye oil production company in Khanty-Mansiisk
autonomous district since last September, having acquired a 50 per cent stake
"We have established good, normal relations with RussNeft and are working
together," he said. He said that the purchase of the Russneft stake is not
being discussed. MOL PR director, Denis Mohorovic, told Interfax that no
proposal has been received from RussNeft either to buy the MOL stake in the
joint venture. Fasimon would not disclose the volume of investment in the joint
venture planned for next year, but said that MOL has good financial
possibilities. He also said that MOL has good business ties with Russia's LUKoil,
and in particular has a long-term contract to supply oil. "Talks are being
held with LUKoil, but we have not had talks about assets," he said. He said
that the company's strategy until 2010 is to increase MOL's upstream sector,
including in Russia. He said that at the moment Russia accounts for 50 per cent
of the company's overall oil production. MOL also plans to take part in the
consolidation of the oil refining and marketing sector in Central Europe.
According to Mohorovic, MOL is interested in taking part in the privatisation of
Serbia's Naftna Industrija Srbije (NIS). He said that the Serbian government has
not yet announced the tender conditions and the stake that may be sold. The
tender is expected to take place in 2006. LUKoil vice president, Leonid Fedoun,
said earlier that LUKoil plans to take part in this tender together with its
strategic partner ConocoPhillips.
Electrolux makes Euro 25m expansion
Swedish white goods maker Electrolux inaugurated a 25 million Euro expansion at
its refrigerator plant in Nyiregyhaza in NorthEast Hungary on January 23rd, New
With the investment of 65 million Euro Electrolux opened its plant just six
months before and now makes the facility Electrolux's most modern, Camillio
Fulvo, who oversees all of Electrolux's refrigerator production in Europe, said
at the ceremony. As a result of the expansion, the plants output will rise from
280,000 units in 2005 to 650,000 units in 2006.
Rivals ponder Magyar Telekom's fixed-mobile offer
Magyar Telekom Rt has followed up on its earlier promise to better utilise the
synergies between its fixed-line and mobile divisions with a new package that
offers large discounts for calls between fixed and mobile phones, Budapest
Business Journal reported recently.
As such offers are likely to be stepped up with the forthcoming merger of
T-Mobile Hungary Rt into the operations of Magyar Telekom, the company's
competitors are expressing hope that such offers abide by the law as they
themselves consider a market response.
"We certainly believe in fixed-mobile convergence, and will explore all
possibilities as to how this could be achieved on the Hungarian market,"
said Martin Lea, CEO of the country's number two fixed-line telecom, Invitel Rt.
"Obviously, teaming with a mobile operator is one option. We're also aware
that the opportunity for a fourth mobile licence will re-emerge at some
stage," he added.
In the framework of Magyar Telekom's "OdaVissza" discount scheme
launched on Jan 16th, up to four T-Mobile phone numbers selected by the
subscriber or bill-payer can be called at Ft 0 per minute throughout the day
from a T-com (fixed line) number, for a gross fee of Ft 990 per month. The
selected T-Mobile numbers can call each other for a gross fee of Ft 990 per SIM
card, at a rate of Ft 0 per minute, 24 hours a day. If requested, the customers
of T-Com can also choose a supplementary option at Ft 790 per month, where two
more T-Com fixed-line numbers can be called at the Ft 0 rate all day.
In addition, claims Magyar Telekom, administration will be easier for customers
of the Magyar Telekom Group because a unified shop network will be developed
with the integration of the Magyar Telekom and T-Mobile shops from mid-January.
Hungary's number two mobile provider, Pannon GSM Rt, responded cautiously to the
"Our experts are currently evaluating the offer, its concord with the law,
and its prospective market impact," said Dora Somlyai, Pannon's
A statement from the Competition Office (GVH), meanwhile, said that the
authority intervenes in the conduct of market players only if they unjustifiably
restrict competition, for example by abusing their dominant position.
"However, we must emphasise that there have been no allegations of abusive
conduct so far regarding the first joint offer of T-Com and T-Mobile - the
Oda-Vissza discount scheme - on the part of Magyar Telekom's competitors,"
said the statement.
Nevertheless, the GVH stressed that it is keeping a close watch on the behaviour
of companies with significant market power in the electronic communications
markets, and will start proceedings if it detects any violation of competition
"In the electronic communications market, it is the duty of the NHH
(National Telecommunications Authority) to intervene using regulatory tools if
there is a need to prevent possible future abusive behaviour ex ante, in order
to introduce or promote competition on the market," it said.
Chinese tourism on the rise in Hungary
Data released from the Central Statistics Office (KSH) government tourism
promotion company, Magyar Turizmus, said on January 24th that Hungary received
nearly 60 per cent more tourists from China in January-November 2005 as compared
to the same period in 2004, New Europe reported.
Air China opened an office in Budapest in 2003, and an agreement between
Hungarian airlines, Malev, and Chinese airlines, Hainan, in 2004 boosted air
travel with a code sharing agreement on flights between Budapest and Beijing,
the promotion company said, noting that Hungary plans to keep air travel with
China in the spotlight of tourism developments in the future.
BKV signs tunnel tender for fourth line
The Budapest Public Transportation Company (BKV) Rt signed a contract with a
consortium led by France's Vinci including the Austrian, German and Hungarian
units of Strabag, and Hungary's Hidepito Rt to drill two 7.3 kilometre tunnels
side-by-side and build one station for Budapest's planned fourth underground
line, New Europe reported.
Laszlo Gulyas, Project Manager for the new line said that drilling would start
in the summer of 2006 and finish by the end of 2008. The consortium, under the
name Bamco, was declared the winner of the tender to drill the tunnels with a
bid of HUF 52.9 billion, excluding VAT, in December. The companies will drill
and build the tunnels, as well as build a station at Gellert Square within 143