Finance Minister of the Year: Hungary’s Mihály Varga

When 2015 came to an end, Hungary had many reasons to give thanks. One of them is the country’s economic recovery.

“Hungary is less vulnerable,” said Minister for National Economy Mihály Varga in an exclusive interview to Reuters earlier December. Translating from the language of the financial world — and Minister Varga’s characteristic understatement — that means that Hungary, after difficult reforms that were at the time criticized as being unorthodox, has found its way back to the path of economic growth.

Thus, especially for the timely conversion of the country’s foreign currency denominated loans, a move that played a big part in reducing the country’s vulnerability, Minister Varga was recently named “Finance Minister of the Year for Central and Eastern Europe 2015” by the Emerging Markets website of London-based finance and business monthly Euromoney. The distinction was awarded based on input from bankers, economists and analysts from across Europe.

It’s an outstanding recognition of the determined work of the minister and of the remarkable recovery of the Hungarian economy.

“Prime Minister Viktor Orban’s government has stabilized Hungary’s finances since it took power in 2010, using big windfall taxes on banks and other business sectors such as energy and telecoms, while economic growth is around 3 percent and Hungary also runs a big current account surplus,” Reuters reported, adding that an upgrade to the country’s credit rating is expected in 2017.

For several years following the 2008 financial crisis, Hungary struggled to manage the growing burden of foreign exchange debt weighing on households and dragging down the country’s economy. Finally, in November 2014, Hungary’s government reached an agreement with banks to convert up to $12bn of foreign currency loans, most of it denominated in Swiss francs, into Hungarian forints at the (then) market rate. In January 2015, this highly criticized decision appeared prescient when the Swiss franc exchange rate suddenly rose substantially. By making this tough move, the Hungarian government was able to prevent a dramatic, and potentially devastating, increase of 700 billion forints in household debt.

That debt conversion, as well as Hungaryʼs early repayment in 2013 of the International Monetary Fund loan, were some of reasons for the award. Improvements in tax collection and public debt management were also highlighted as impressive achievements. “This is the success of Hungary and the Hungarian economic policy,” Varga said while receiving the prestigious award, presented at the Annual Meeting of the IMF and World Bank in Lima, Peru. “London analysts, whom we refer to ever so often, have acknowledged the achievements of the Hungarian economy in the past five and a half years,” he added.

Indeed, there are many indicators that Hungary is on the right path. In May 2015, Fitch placed Hungary’s BB+ rating on a positive outlook, a rare event in this region according to Fitch’s regional sovereign analyst, Ed Parker. Fitch’s November analysis also indicates that per capita GDP is higher in Hungary compared to countries of the same rating.

According to IMF data, Hungary’s GDP growth, which was about 3.6 percent last year, stands out compared to Europe as a whole. Although the economy is expected to slow over the next three years, growth is still anticipated to remain above 2 percent. In stark contrast to 2008, private sector jobs are multiplying, investment and consumption are on the rise, and inflation has fallen.

Altogether, as Pasquale Diana, head of CEEMEA economics at Morgan Stanley, puts it, “Hungary has come out quite strongly in macro-economic terms in the past two years; it has surpassed the market’s expectations”.

So as 2016 has come around, we can also toast the impressive turnaround of the Hungarian economy.