BUDAPEST, November 27, 2012 — The World Bank today signed a Memorandum of Understanding (MOU) with the Government of Hungary that will govern potential Bank support to implement the country’s structural reform program.
Hungary’s reform programs are well known and are outlined in documents such as the Széll Kálmán Plan, the EU Convergence Program, and the National Reform Program of Hungary. In summary, the Government wishes to bring the deficit within the Maastricht criteria by ensuring that civil service wages, pensions, and social benefits remain affordable. Within this context, the Hungarian government approached the World Bank requesting technical expertise and support to implement the various structural measures.
As a “graduate” member of the World Bank the country is no longer eligible to receive financial resources or Bank-financed technical assistance. Therefore, the Hungarian authorities have proposed an arrangement to use the Bank's technical expertise whereby the government will reimburse the World Bank from EU funds available to the country and own resources for any advice and support provided.
Peter Harrold, the World Bank Country Director for Hungary underscored the Bank’s vision for a renewed engagement with Hungary, “We are pleased to offer our technical support to the Hungarian Government. We’ve been able to support several high income clients in the region and elsewhere and have seen excellent results where governments are committed to an ambitious change program.”
Such an arrangement mirrors the Bank’s ongoing “Reimbursable Advisory Service” (RAS) programs in neighboring countries such as Poland, Romania, Slovakia and Latvia, as well as in other parts of the world such as Chile, Thailand, and Kuwait. The fees charged by the Bank will only cover the costs of the staff and resources provided and will not include a profit element. Structuring advice to Hungary on this basis allows the Bank to provide ongoing advice to its graduate clients while also maintaining its technical assistance services to its poorer borrowing countries.
The MOU tentatively identifies possible areas of technical support including; fiscal and sector strategies; pension reforms and the aging agenda, inclusive growth strategies (including addressing outstanding Roma issues), financial sector development (including mitigating the impacts of the eurozone crisis), improving capacity within the public administration, and monitoring and evaluation of all programs implemented through EU structural instruments.
Minister of State for Taxation and Financial Policy of the Hungarian Ministry for National Economy, Gyula Pleschinger commented: "The aim of the MOU is to redefine the 30 years long cooperation of Hungary with the World Bank. In this renewed framework we can maximize the value of our membership in the Bank by using the broad global knowledge base, international best practices and technical capacities to support implementation of structural measures by the government.”
Following the signing of the MOU, the Hungarian authorities are expected to develop, in consultation with the Bank and other stakeholders, terms of reference for particular engagements that will govern the scope and remit of the Bank’s support in each area. Along with the MOU, standard rates and a standard legal agreement have also been confirmed, helping to ensure a smooth negotiation process that will in turn lead to rapid mobilization of Bank teams to support Hungary’s reform process going forward. It is likely that support for a strong program of structural reforms would form a component of any future arrangement between Hungary and the International Monetary Fund and the European Union, on which discussions are continuing.
The Bank looks forward to a renewed partnership with the Hungarian government to implement this important reform program in the coming months and years.