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Economy
Hungary held its first multi-party elections in 1990, following four decades of Communist rule, and has succeeded in transforming its centrally planned economy into a market economy.
Both foreign ownership of and foreign investment in Hungarian firms are widespread.
The governing coalition, comprising the Hungarian Socialist Party and the liberal Alliance of Free Democrats, prevailed in the April 2006 general election.
Hungary needs to reduce government spending and further reform its economy in order to meet the 2012-13 target date for accession to the euro zone.
Hungary has continued to demonstrate economic growth as one of the newest member countries of the European Union (since 2004).
The private sector accounts for over 80% of GDP.
Hungary gets nearly one third of all foreign direct investment flowing into Central Europe, with cumulative foreign direct investment totaling more than US$185 billion since 1989.
It enjoys strong trade, fiscal, monetary, investment, business, and labor freedoms.
The top income tax rate is fairly high, but corporate taxes are low.
Inflation is low, it was on the rise in the past few years, but it is now starting to regulate.
Investment in Hungary is easy, although it is subject to government licensing in security-sensitive areas.
Foreign capital enjoys virtually the same protections and privileges as domestic capital.
The rule of law is strong, a professional judiciary protects property rights, and the level of corruption is low.
Total government spending is high.
Many state-owned enterprises have not been privatized.
Business licensing is a problem, as regulations are not applied consistently.
According to the conservative think tank Heritage Foundation, Hungary's economy was 67.2 percent "free" in 2008, which makes it the world's 43rd-freest economy.
Its overall score is 1 percent lower than last year, partially reflecting new methodological detail.
Hungary is ranked 25th out of 41 countries in the European region, and its overall score is slightly lower than the regional average.
The Hungarian sovereign debt's credit rating is BBB+ as of October 2008[update].
However Standard & Poor's may downgrade Hungary's BBB+ sovereign credit rating due to mounting financial-sector funding pressures and their potential to raise general government debt materially from its current level of 67% of GDP (October 2008).
Foreign investors' trust in the Hungarian economy has declined, as they deem that the stringency measures planned in the second half of 2006 are not satisfactory; their focus being mainly on increasing the income side rather than curbing government spendings.[citation needed] Economic reform measures such as health care reform, tax reform, and local government financing are being addressed by the present government.
General government net lending was 9.2 percent in 2006, instead of estimated 10.1 percent (but still the largest in Europe) due to the austerity program of the government, and was 5.5 percent in 2007, and recent estimates of the government says 4 percent in 2008.[citation needed] .
Because of the large austerity program, the real growth of the incomes was negative in 2007 at -5.5 percent, and the estimates say 1 percent increase in 2008.
The GDP growth was only 1.4 percent in 2007, much lower than in 2006, due to the decreased government spending, in first quarter of 2008 the GDP growth was 1.7 percent, slightly stronger than last quarter of 2007 (0.9 percent).
During the second quarter in 2008, the GDP growth was 2.0 percent in yr/yr term, and due to the effects of the 2008 financial crisis on the Hungarian forint, and on the bank system, the 3rd quarter growth was slew down to 0.8 percent yr/yr.
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The estimates for 2009 are well between 1 and 1.5 percent decline.
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The 2008 financial crisis hit Hungary mainly in October 2008.
As quick decline versus euro, the Hungarian National Bank raised interest rates at 3.0 percent, to 11.5 percent on 22th October.
As the Hungarian Government asked financial rescue package worth $25.1 billion from the International Monetary Fund, the European Union, and the World Bank, promising to IMF that recalculate the 2009 budget, as Hungary's GDP declines 1.0 percent, and slow down government spending, for example, stop the wage increase for state workers.
This way, the budget gap decline to 2.6 percent down from 5.5 percent of GDP in 2007, and will meet Maastricht criteria.
In this circumstances, more and more economists estimate, that Hungary can join the ERM-II, which gives the possibility that Hungary can adopt the euro 2 years after joining the ERM-II monetary system.
Source: CIA Factbook, Wikipedia
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