According to the IMF, significant policy weaknesses have emerged in recent years – in particular, the lack of predictability of the fiscal budget and the persistence of high fiscal and current account deficits. While a benign global financial environment has ensured the financing of the deficits, Hungary’s currency risk premium remains high relative to other countries in the region, and with the 2005 fiscal target to be imminently missed and the substantial challenges for 2006, the risks have increased, says the report.

The IMF notes that fiscal consolidation in 2004 was smaller than originally thought, while in 2005, focus shifted towards accounting measures to achieve budgetary targets. Announced 2006 budget plans, which propose a 1.5% of GDP expenditure consolidation, "do not appear to come to grips with the seriousness of the problem, either in the extent of the consolidation needed or in the quality of the adjustment proposed."

The report stresses that urgent action is needed, accompanied by the setting of a realistic fiscal deficit trajectory for the Convergence Program and euro adoption. "Transparency and candid communication, based on realistic targets, will help avoid destabilizing surprises, while improving budgetary controls."