RESTRICTED
WORLD TRADE WT/BOP/13
11September 1996
ORGANIZATION(96-3502)
Committee onBalance-of-Payments Restrictions
1996 CONSULTATION WITH HUNGARY UNDER THE
BALANCE OFPAYMENTS PROVISIONS OFTHE GATT 1994
AND THE RELATED UNDERSTANDING
Basic Document Supplied byHungary
Background
TheHungarian Government introduced in1995 asetofmeasures tocontain unfavourable
economic tendencies. They included asurcharge of8percentonimports toHungary withtheeffect
from20March 1995. Thismeasure wasdulynotified toWTO. TextoftheNotification wascirculated
indocument WT/BOP/N/2/.
TheWTO andGATT 1947 Committees onBalance ofPayments Restrictions carried out
consultations jointly withrepresentatives oftheHungarian Government on26and30June1995. They
recognised thatHungary hadintroduced theimport surcharge toaddress theimminent threat ofa
serious decline initsbalance ofpayments. Thesurcharge formed partofaneconomic stabilisation
package aimed atcorrecting current account andfiscal imbalances. They recognised alsothatthe
measure wasprice based, uniform andnondiscriminatory, thatthesurcharge applied toallimports
except primary energy products andthatitwasreimbursable oninvestment machinery. The
Committees noted Hungary 'sintention toreduce import surcharge progressively beginning notlater
than1January 1997 andtoeliminate itby1July1997. /Report onthe1995 Consultation with
Hungary; WT/BOP/R/3./
Results oftheeconomic stabilisation measures
Inconsequence ofthemeasures taken asapackage thefurther deterioration ofexternal
imbalances andbudget deficit wasarrested in1995andconsiderable improvement wasachieved. Both
animproved foreign trade balance, andconsiderable reduction ofbudget deficit in1995 aswellas
outstanding foreign direct investment performance relieved theimmediate pressure onthebalance of
payment. FDI,including privatisation revenues amounted 4.453 billion USD. Thecapital account in
1995hadamedium andlong-term capital inflow ofUSD7.131 billion, which is1,7billion more than
in1994. Thegross foreign debtofHungary attheandof1995 amounted toUSD 31.655 bn.an
increase ofUSD 3134 bnovertheprior year/outofwhich USD 712Millions. wasduetocross
exchange ratechanges/. Among gross claims international reserves increased by5.241 Bn.in1995
andtotalled USD 12Bn.Netforeign debtwasUSD 16.817 i.e.2.439 Bn.lessthanayearbefore.
Current account deficit wasreduced to2480Million USD in1995fromthatof3911Million
USD in1994.
While prior totheintroduction ofthecomplex measures, including surcharge, lowexport
performance andadynamic import growth wasexperienced aflattening rateofimport growth andWT/BOP/13
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accelerated exports characterised theeconomy inthemonths afterthemeasures taken. Foreign trade
balance improvement ofover1,2Billion USD played anoutstanding roleintheconsolidation. /Data
onHungarian foreign trade arecontained inAnnex 1.Dataonbalance ofpayments arecontained in
Annex 2./
Duetothecomplex nature ofthestabilisation steps itisimpossible toevaluate theimpact of
individual measures. Undoubtedly there isastrong correlation between thesurcharge andslowing
down import growth. Atthesame timethedynamism ofexports performance anddecelerating
imports waslikely duealsotoreduced purchasing power ofthepopulation aswellasofthe
government sector, thecrawling devaluation system ofthenational currency andother factors.
Further experiences andperspectives
During thefirsthalfof1996thepositive tendencies continued however growth rateofexports
slowed. Foreign trade deficit further decreased butincontrast to1995 adecline inimports
appreared inthesecond quarter. Themodest increase inimports ofthefirstquarter waspartly due
totheahigher energy import inconsequence ofmore severe winter conditions. Inspite ofthis
increase itistobenoted thatenergy efficiency oftheeconomy isimproved overtheyears asaresult
ofbotheliminating energy intensive metallurgical, chemical production andimproving technology.
Inexports rateofgrowth surpassed theaverage inmanufacturing andengineering sectors. Share of
agricultural products somewhat declined though thisismainly consequence ofintroducing restriction
onwheat exports. 1996 cropiswellbelow thatofthelastyear. /1996 foreign trade data: Annex 3./
Trade performance reflects some ofthestructural changes intheeconomy. Suchchanges are
alsomanifested bythefactthat70percentofexports arecarried outbyfully orjointly owned
foreign companies.
Price increases in1995 were considerably higher thanayearbefore, duetoadministrative
price andtaxincreases andalsoduetofastgrowing world market prices. Inflation in1995 was
pushed bycostincrease whereas in1994 iswasdemand pulled. Industrial producer prices increased
by28.9. percentandconsumer prices by28.2p.c.Rateofinflation issubdued in1996, however
toalesser extent thanenvisaged. Monthly deceleration ofprice increase isexperienced.
Theimportance ofgradual elimination oftheimport surcharge isdulyrecognised bythe
Hungarian authorities. Thesurcharge, aprice based measure toreduce thevolume ofimports
contributes tothegeneral contraction inmacroeconomic demand. However, theincrease inthecost
ofproduction mayreduce thecompetitiveness ofthedomestic production.
Thegradual reduction ofthelevel oftheimport surchage, thusrelative improvements in
competitiveness coincide withtheeconomic recovery inHungary ’smajor export markets thatis
forcasted for1997. Thismayfurther improve theexport performance oftheHungarian economy. The
share ofexports innetsales ofenterprises hasalready increased from 13.4% in1993 to16.6% in
1995 andstrong export performance isexpected in1996, aswell.
Thegradual elimination oftheimport surcharge willfurther curtail staterevenues. However,
cutsinGovernment expenditures andincrease instaterevenues arising from theeconomic recovery
isexpected tocompensate thediscontinued income. Furthermore, thegradual elimination ofthe
import surcharge maycalmtheinflatory pressure ontheForint.WT/BOP/13
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Hungary remains committed toitsintention reflected inthereport ofthe1995 consultations
togradually eliminate thesurcharge by1July1997. Asafirststepthesurcharge wasreduced by1
percentage points i.e.to7p.c.asof1July1996. Inaccordance withthedecision oftheGovernment
afurther 1percentage point cutisgoing totakeeffect from 1October 1996.WT/BOP/13
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ANNEX I
FOREIGN TRADE BYCOMMODITY GROUPS
EXPORTS IMPORTS
1994 Value 000$ p.c.overprevious
yearsValue 000$ p.c.over
previous years
Fuels, energy 351,633 118.0 1,599,706 100.8
Materials 3,900,190 120.9 5,370,326 127.4
Machinery 1,286,044 112.3 3,282,070 101.7
Consumer goods 2,859,406 126.9 3,205,230 120.5
Food 2,190,319 116.2 992,020 134.2
Total 10,587,591 120.2 14,449,352 116.2
EXPORTS IMPORTS
1995 Value 000$ p.c.overprevious
yearsValue 000$ p.c.over
previous years
Fuels, energy 308,984 87.9 1,662,996 104.0
Materials 5,084,700 130.4 6,541,565 121.8
Machinery 1,058,632 113.4 3,109,547 94.7
Consumer goods 3,211,944 112.3 3,235,666 100.9
Food 2,802,772 128.0 916,520 92.4
Total 1,286,703 121.5 15,466,293 107.0WT/BOP/13
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ANNEX 2
BALANCE OFPAYMENTS OFHUNGARY INCONVERTIBLE CURRENCIES
Denomination 1993 1994 1995
Exports* 8.1 7.6 12.8
Imports* 11.3 11.2 15.3
Trade balance (3.3) (3.6) (2.4)
Services andincome
Freight andshipment, net (106.0) (176.0) (186.0)
Government expenditures, net (17.0) (12.0) (13.0)
Services, net (104.0) (55.0) 195.0
Travel, receipts 1.2 1.4 1.7
expenditures 739.0 925.0 1.1
net 442.0 503.0 659.0
Direct investment income, net (56.0) (117.0) (194.0)
Investment income
receipts 456.0 661.0 758.0
expenditures 1.6 2.0 2.4
net (1.1) (1.3) (1.6)
Labour andproperty income net (6.0) (43.0) (52.0)
Unrequired transfers, net 732.0 909.0 1.1
Other payments, net 38.0 1.0 25.0
CURRENT ACCOUNT BALANCE (3.5) (3.9) (2.5)
Capital account 3.5 3.9 2.5
Medium andlong-term capital 5.6 2.3 5.6
Assets, net** 237.0 36.0 118.0
Liabilities, net 3.1 1.2 1.1
Inflow 6.4 5.4 7.1
Outlow 3.3 4.3 6.1
Direct investment income
inHungary, net 2.3 1.1 4.5
abroad, net** (11.0) (49.0) (43.0)
BASIC BALANCE 2.2 (1.6) 3.1
Short-term capital 459.0 960.0 1.4
Assets** (165.0) 189.0 (9.0)
Liabilities 624.0 771.0 1.4
OVERAL BALANCE 2.6 (656.0) 4.5
Changes ofreserves** (2.6) 656.0 (4.5)
Source: NBH
* Trade dataisonsettlement basis
** increaseWT/BOP/13
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ANNEX 3
FOREIGN TRADE TURNOVER
JANUARY-JUNE 1996
EXPORTS IMPORTS BALANCE
1995 1996 1996/95 1995 1996 1996/95 1995 1996
I.Quarter 2720.7 3022.1 111.10% 3713.8 3790.7 102.10% -983.1 -768.7
April 929.4 1040.4 111.90% 1344.4 1263.4 94.00% -415 -223
May 1084.7 1063.7 98.10% 1379.4 1263.8 91.60% -294.7 -200.1
June 1070.9 1002.6 93.60% 1336 1265 94.70% -265.1 -262.4
II.Quarter 3085 3106.7 100.70% 4059.8 3792.2 93.40% -974.8 -685.6
January-June 5806.7 6128.8 105.60% 7773.6 7582.9 97.50% -1967.8 -1454.2
COMPOSITION OFFOREIGN TRADE
JANUARY-JUNE 1996
EXPORTS IMPORTS TRADE BALANCE
Value percentof
1995Value percentof1995 Value
Agriculture incl.
food, beverages,
tobaco987.3 97.4 375.5 88.3 611.8
Rawmaterials 307.3 102.9 327.1 92.1 -19.8
Energy 247.4 118.5 943.4 107.9 -696
Manufactures 2973.9 107 3702.6 99.4 -728.7
Machinery and
equipment1612.9 107.2 2234.4 93.3 -621.5
TOTAL 6128.8 105.6 7583 97.5 -1454.2