Executive Directors commended the authorities on Hungary's robust performance in its first year as a European Union (EU) member. Administrative challenges generated by EU accession were overcome successfully, the export sector responded positively to increased competition, and macroeconomic imbalances were contained. At the same time, Directors noted that vulnerabilities exist, including the high current account and fiscal deficits, and that Hungary's growth potential and performance have declined. They urged the authorities to maintain a track record of consistent and predictable policies in order to raise productivity and growth in the short run and prevent their erosion in the medium term. Directors considered regaining control over fiscal policy to be the key challenge facing Hungary. They emphasized that fiscal consolidation is crucial, noting that missing the 2005 fiscal deficit target would set back debt reduction and further damage policy credibility. Beyond 2005, Directors felt that adherence to at least the fiscal targets in the Convergence Program is essential not only for euro adoption by 2010, but also because slippages would undermine macroeconomic stability, debt sustainability and medium-term growth prospects.