European Commission Loan to Hungary: Paid in Full
This week, Hungary made the last payment of 1.5 billion EUR to the European Commission, paying in full a loan taken in 2008-2009 by the previous Hungarian government. With this last payment, said Minister for National Economy Mihály Varga at a press conference on Wednesday, the Orbán Government has taken yet another step toward the goal it set out in 2010 to boost Hungary’s economic stability and financial independence.
The 2008 financial crisis hit Hungary’s economy hard, exploiting a number of structural problems, such as the rising external debt. These structural weaknesses were aggravated by the failed economic policies of previous left-wing governments, policies that forced austerity measures, tax increases and other burdens on families. By the end of 2008, Hungary was near bankruptcy, and the Socialist government was forced to request a loan from the IMF, the EU and the World Bank.
When the international credit crisis hit and the economy was contracting, Hungary found itself in serious debt, even compared to other economies of similar size. By 2010, the debt-to-GDP ratio increased dramatically from 55.1 percent in 2002, when the first Orbán Government left office, to 83.7 percent. Government spending allowed the deficit to reach 7 percent of GDP.
In a volatile international financial market, the structure of state debt had also become a serious risk: 70 percent of Hungary’s debt was financed by foreign creditors, Minister Varga said, and the share of forex debt had hit 50 percent of the total debt.
Beginning in 2010, however, the health of the state budget began to improve, and in 2013, the economy began to grow again, resulting in the suspension of the EU’s excessive deficit procedure against Hungary.
By the summer of 2013, Hungary repaid the IMF loan of 8.8 billion EUR ahead of schedule. The transfer of 1.5 billion EUR on Wednesday was the last tranche of the 5.5 billion EUR loan from the European Commission, marking the debt paid in full.
With the complete payment of the IMF-European Commission loan, Hungary has stabilized its finances on the markets instead of through international loans. Today, 89 percent of Hungarian debt is in state bonds, the minister said, while the rate of foreign currency debt and of foreign creditors has declined significantly, the minister said.
Minister Varga added that the full repayment of the IMF-EU loan should improve prospects for upgrading of Hungary’s credit rating.