Publication: Magyar Közlöny
Issue: MK-2008-169 (Year: 2008, Number: 169)
Era: 2004-2010
Section: 214/1996. (XII. 23.) Korm. rendelet, valamint az azt módosító 191/2003. (XI. 26.) Korm. rendelet és 79/2005.
Paragraph Index: 283

17. 11. 2008 in four originals in the English language. REPUBLIC EUROPEAN OF HUNGARY COMMUNITY Represented by Represented by EUROPEAN COMMISSION János Veres, Dr. Joaquín Almunia Minister of Finance Member of the European Commission NATIONAL BANK OF HUNGARY Represented by András Simor Governor of the National Bank of Hungary ANNEX I SPECIFIC ECONOMIC POLICY CRITERIA At the time of the Commission staff review that will precede the decision on the disbursement of each instalment, the Hungarian authorities are committed to have accomplished progress in fiscal consolidation and expenditure control, fiscal governance reform, achievement of price stability, banking sector stability, financial sector regulation and supervision reforms, as well as structural reforms, and in particular the following actions: Second instalment The review will take into account the budgetary strategy presented in the December 2008 Convergence Programme update, including the primary balance targets for 2010 and as derived from the new fiscal governance framework. A: Fiscal consolidation – Progress with the achievement of the revised 2008 deficit target of 3.4% of GDP as supported by the progress in achieving of the revised official 2008 cash-flow deficit target for the central government subsector (also of 3.4% of GDP); – The adoption by Parliament of the 2009 budget, targeting a deficit of 2.6% of GDP and including the underpinning measures. B: Fiscal governance reform – Adoption by Parliament of the planned fiscal governance reform, including the introduction of medium-term numerical rules and the establishment of independent fiscal bodies. C: Financial sector regulation and supervision – Introduction of a support package for the domestic banking sector in line with agreed EU principles and in conformity with the guidance provided by the Commission on the application of EU state aid rules. In addition, the government should also be ready to take further measures to ensure the stability of the banking sector in case of need. – Adoption of measures to carefully monitor banks’ funding needs so as to enhance the capacity to support banks in case of need. In this context, the authorities will (i) monitor closely the commitment of foreign banks to support their Hungarian subsidiaries; (ii) establish a special fund to guarantee the rollover of loans and wholesale securities against an appropriate fee with proper monitoring of actual guarantees. – Strengthen financial sector supervision through: (i) initiation of the creation of a positive credit registry for households; (ii) making the necessary changes to the Central Bank Act to allow the MNB to request disaggregated data on individual banks to adequately analyze credit risk; (iii) close monitoring of banks’ foreign currency exposure both directly and indirectly through their clients’ credit risk; (iv) enhanced cross-sectoral risk analysis by financial supervisors. – Seeking an agreement with commercial banks that facilitates the restructuring of household debt by means of adjustments in the maturity and repayment schedule of the debt, also including the option to convert foreign-currency loans into forint loans, thereby mitigating the large household foreign currency risk. D: Structural reforms – Adoption by the Parliament of the legislation in the context of the „Pathway to work”, which includes the 2008/169. szám reorientation of some resources of the Labour Market Fund from passive means towards active labour market policies and is expected to be included in the National Reform Programme of November 2008. Third instalment The review will take into account the assessment of the December 2008 Convergence Programme update and the Spring 2009 EDP progress report. A: Fiscal consolidation – The outcome of the 2008 budget deficit, as validated by Eurostat following the 2009 Spring fiscal notification, in relation to the revised official 2008 ESA deficit target of 3.4% of GDP; – Progress with the achievement of the new 2009 deficit target of 2.6% of GDP as supported by the progress made towards the revised official 2009 cash-flow deficit target for the central government subsector (2.3% of GDP). B: Fiscal governance reform – Appointment of the members of the Fiscal Council, supported by adequate staffing. C: Financial sector regulation and supervision – Take measures to strengthen financial sector supervision and regulation. These measures would notably include: (i) enhanced oversight of insurance and credit brokers and their products; (ii) measures to ensure prudent loan-to-value ratios for mortgage loans and loan-to-income ratios for household credit. – Take measures to further strengthen the HFSA’s and MNB’s capacity to assess and address solvency and liquidity concerns in banks in a timely manner. This would notably involve: (i) establishing a mechanism for early remedial actions, including effective emergency powers for the HFSA; (ii) improving the efficiency of the bank resolution regime to facilitate the payments to depositors in case of need. Fourth instalment A: Fiscal consolidation – Progress with the achievement of the new 2009 deficit target of 2.6% of GDP as supported by the progress made towards the revised official 2009 cash-flow deficit target for the central government subsector (2.3% of GDP); – Submission of the 2010 draft budget proposal by 30 September 2009, which aims to achieve a further reduction in the deficit and is fully in line with the numerical rules included in the new fiscal governance framework. B: Fiscal governance reform – The preparation and deliberation of the 2010 draft budget proposal is based on the procedural rules as established in the new fiscal framework. C: Financial sector regulation and supervision – Take measures to strengthen cross-border supervision and communication between the supervisory authorities in home and host counties. This requires a structured exchange of information between the HFSA and the supervisory authorities of the home countries of the major foreign banks present in Hungary, including in the context of colleges of supervisors, as well as regular meetings to review the situation in each bank, including joint stress tests and onsite inspections as needed. D: Structural reforms – Take further steps to improve the sustainability of the pension system and based on the expert work of the Roundtable on pension issues present options for possible future steps. Throughout the implementation of the assistance, performance in the following areas will be monitored: Inflation – Progress towards achieving price stability with a view to gradually bringing down inflation to the level of the medium-term target set by the authorities. Structural Reforms – Implementation of the Council Recommendation in the context of the assessment of the National Reform Programme under the Lisbon strategy. ANNEX II MONITORING AND REPORTING SYSTEM During the implementation of the Community assistance, the following indicators and reports shall be made available to the Commission by the relevant authorities on a monthly, quarterly or annual basis:

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