Thursday

7th Jul 2022

Hungary reaches out for ‘precautionary’ EU-IMF rescue

The European Union and the International Monetary Fund have confirmed that Hungary has approached them seeking “precautionary” assistance as its borrowing costs climb.

The bloc and the Washington-based lender on Monday acknowledged that they had received a request from Budapest for help, although no details or projections of the required funds were revealed.

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The move is a sharp U-turn on the part of Prime Minister Victor Orban conservative and staunchly nationalistic government.

The country entered into a €20 billion IMF bail-out programme in 2008 in the middle of the early stages of the global economic crisis under the previous, centre-left administration.

But upon arriving in office, Orban broke off talks with the fund on a possible extension of the rescue, saying the measures the country had taken would allow it to return to the markets to raise the cash that was needed.

The European Commission has been guardedly critical of the Orban administration’s fiscal strategy, which has involved levies on certain sectors of the economy and the nationalisation of private pensions.

Brussels argues that the one-off moves may make the books appear to balance for a short period of time, but do not provide the grounds for long-term fiscal sustainability.

Orban for his party has been loth to embrace the recipe for growth recommended by Brussels and the IMF, which involves cuts to public spending, as he knows it would hit his electoral base.

Despite Budapest’s latest move, the government remains convinced that it can negotiate a deal with the EU and the IMF that “instead of austerity measures, will aid Hungary's economic growth,” according to a statement from the Hungarian economy ministry.

In recent weeks, the forint has drooped. While a lower currency can boost exports, it pushes the cost of externally-owed debt every higher.

Commentators are also expecting a downgrade in the country’s credit rating to ‘junk’ status by one of the main credit rating agencies. Hungary’s current rating sits at one notch above junk.

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