Contemporary Issues Leading to Economic Development Problems in Hungary (Essay Sample)

Contemporary Issues Leading to Economic Development Problems in Hungary
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Contemporary Issues Leading to Economic Development Problems in Hungary
Introduction
Hungary is one of the new members of the EU that has the best economy. Specifically, the country has a middle-sized economy with an upper-middle-income. The factors contributing to a good economy in the country include: increased privatization, high level of foreign direct investment and introduction of comprehensive trade and business laws. Another reason that makes Hungary’s economy to perform highly is because of the country’s business ties with the leading Euro-zone economies such as the economy of Germany. Essentially, more than 25% of Hungary’s exports goes to the leading EU members, primarily Germany, Italy, France and Austria. The country also trades a lot of its goods, services and skills with Russia, one of the countries with the best economies globally.
Unfortunately, despite the high prosperity in the economy of Hungary, there exist some contemporary economic, social and environmental issues that seem to threaten the prosperity. This paper discusses three of the most serious issues, focusing on the background to the issues, their effects on the country’s economy and the difficulty involved in addressing the problems. The three discussed issues including: Dept, extreme poverty and floods.
Debt
Over the past one decade, increasing public debts have become one of the most vital problems for the Hungarian economy. Although the country has been experiencing high trade surpluses towards the end of the decade, it still remains vulnerable to external shocks and any shortfalls in global risk appetite. Specifically, as the country closed the last financial year (2013) and entered into the current financial year (2014), its sovereign debt increased highly, leading to the highest debt to GDP ratio that has ever been experienced among all European countries. In particular, Hungary’s debt to GDP ratio now stands at 81%, an increase from 78% in the year 2013, CITATION Bak14 \l 1033 (Baksay, et al., 2014). According to Pfeifer, (2013), the debt is said to have increased due to two major issues, including the purchase of 21.3% share of MOL, which added around 2% to the national debt and the flat tax that was introduced by the Orban Government. Essentially, the flat tax issue led to missing tax revenues amounting to around 900 billion Hungarian Forint during the year 2013, CITATION Kar13 \l 1033 (Pfeifer, 2013). This shortfall triggered the government to take up more loans in order to support public spending and payments, which in turn lead to a high percentage of debt to GDP ratio. As another potential threat, large foreign exchange loans taken by households and firms are continually increasing in Hungary due to rapid privatization of the public sectors that has been occurring recently, thus exposing the country to more debt crisis, CITATION Bak14 \l 1033 (Baksay, et al., 2014). The loans which are mostly acquired in Euros and Swiss francs makes up a potential threat to the economic development of the country. In essence, external debts taken by both the government and the private sector of Hungary are significantly large potential threats to the country’s economic growth in the future.
High levels of external debts have been observed to cause intense negative impacts on the economy of Hungary. To start with, high debts have been observed to be a major factor causing high negative budget deficits in Hungary. Essentially, the interest paid with the debts is financed from the country’s budget, thus causing high balance of payments due to the fact that the interest are paid to non-citizens, CITATION Bak14 \l 1033 (Baksay, et al., 2014). Although the current Hungary’s balance of payment is below Europe’s average balance of payment, CITATION Kar13 \l 1033 (Pfeifer, 2013), research shows that if it were not for the high public debt, the country’s balance of payment could be even lower, CITATION Bak14 \l 1033 (Baksay, et al., 2014). High public debts have also made Hungary to lose a lot of both domestic and foreign investors. Essentially, acquisition of public debts has enabled the Hungary’s public sector to produce highly thus limiting the role of public investors in the country’s production, CITATION Bak14 \l 1033 (Baksay, et al., 2014). Considering that the latter are the key players in an economy, shrinking their investments has reduced the growth outlook of the Hungarian economy. Finally, the acquisition of more public debts has intensified the Hungary’s indebtedness, causing serious problems to the Hungarian securities market. In essence, high indebtedness is making it hard for Hungary to sell-off its government securities.
A number of factors make it Hard for Hungary to manage its external debts. To start with, the fact that Hungary acquires debts in highly superior and stable currencies such as Euros and Swiss francs makes it so hard for the country to manage its debts, CITATION Kar13 \l 1033 (Pfeifer, 2013). In essence, occasional sharp falls in the value of the Hungarian currency increase the volume of the debts paid to the creditors. Another problem that has made Hungary’s payment of debts so hard is the ever existing readiness of other countries to offer the country some financial assistance. Countries such as Germany, Britain and France have always been ready to lend Hungary some money thus making it so hard for the country to come out of debts, CITATION Bak14 \l 1033 (Baksay, et al., 2014).
Extreme Poverty
Extreme poverty has been a major problem hampering the development of the economy of Hungary. In the last one decade, Hungary has experienced a gradual deterioration of the living situations of the people living in poverty. In particular, the living standards of the Roma community have deteriorated to the extremes. According to a report "National social inclusion strategy-extreme poverty, child poverty and the Roma (2011-2020)," (2012), about 3million out of 9 million Hungarians live in poverty. Of these, more than 1.2 million live in extreme poverty. The report also points out that poverty risks in the country, mostly affect the children, people living in disadvantaged places and the Roma community. In particular, approximately all members of the Roma community amounting to around 700,000 people live in extreme poverty. According to The Economist Editors, (2013), Budapest, the capital city of Hungary holds the largest number of homeless people in Hungary. It is quite often that the homeless are seen boycotting in the city by for example, pulling down their clothes before tourists, urinating against the walls of large offices and cleaning themselves at the central bus-stop shelters. The high levels of poverty and homelessness are believed to be caused discrimination and uneven distribution of wealth and resources (National social inclusion strategy-extreme poverty, child poverty and the Roma (2011-2020), 2012). In this regard, poor people in the country continuously become poorer while the rich flourish.
The continuous deterioration of the living standard of the poor people in Hungary has proved to cause a lot of negative repercussions to these people. Some of these repercussions include: unemployment, poor health care, exclusion from opportunities, lack of innovativeness, illiteracy and many more. These situations have facilitated the growth of the group of the unproductive people in the country as well as an increase in the number of people who rely on aids from the government. This therefore means that the number of those people who deteriorate rather than build the economy of Hungary increase gradually.
Discrimination and lack of innovative minds among the people of Hungary is one of the major problems hampering the fight against poverty in Hungary. According to The Economist Editor, (2013), Hungary is one of the countries which have the highest level of discriminations. Essentially, the poor, especially the members of the Roma community face high discrimination in almost all vital fields of life including: education, jobs, religion, innovation, leadership and so on. The Hungarians are having also been observed to lack innovativeness, thus making them dependant on hired jobs. In this regard, poor people who do not get hired, continue to be poor because they cannot think of any other economic activity that can earn money for them.
Floods
About one third of the entire Hungarian territory remains inundated in almost all the seasons of a year. This has been the case due to lack of drainage in most of the country’s greatest plains. Unlike what happens in other European countries, people who live in almost a quarter of the Hungarian territory are affected by floods every year. In this regard, flood protection has been a key issue in the country. As a measure against floods, the country has built dykes of 4200km in length to protect 700 settlements, 2.5 million citizens, 200 industrial firms and indirectly 30% of its GDP from being affected by floods, CITATION Hoy14 \l 1033 (Hoyois & Guha-Sapi...