EU releases third instalment of Community financial assistance to Hungary
On 6 July 2009, the Commission disbursed the third instalment (€ 1.5 billion) of the Community loan to Hungary.
Article updated 10 July 2009. Following the decision of the ECOFIN Council on 4 November 2008 to provide balance of payments assistance of up to €6.5 billion to Hungary, a Memorandum of Understanding and a Loan Agreement, setting out the economic policy and financial conditions attached to this assistance were signed on 19 November 2008. A first instalment of €2 billion was disbursed on 9 December 2008.
On 26 March 2009, the second instalment of EUR 2 billion was disbursed. It was based on the conclusion that the conditions linked to the release of the second tranche of the Community loan were met. Moreover, it followed the signature of a first Supplemental Memorandum which slightly adjusted the deficit target in the light of the deteriorated GDP growth outlook (from -1% to a range of -3 to -3.5%) and included additional economic policy conditions attached to the next two instalments that basically endorsed the government's additional commitments for consolidation (expenditure cuts of 0.7% of GDP) and reform.
In May 2009, the Commission reviewed Hungary's economic policy criteria attached to the third instalment and considered them to be overall fulfilled. However, the international and domestic macro-economic environment had further substantially deteriorated, and now GDP is expected to decline by around 6½% with a sizeable budget revenue loss. Against this background, the authorities adopted a strategy that comprises the adoption of additional corrective measures of 0.8% of GDP, coupled with a series of important structural measures to augment and strengthen the planned reform of the pension and social support system, which should further improve the long-term sustainability of Hungary's public finances. At the same time, to avoid that even more corrective measures would trigger a downward spiral of the economy the deficit target for 2009 has been revised upwards by 1 percentage point.
Second Supplemental Memorandum of Understanding
A second Supplemental Memorandum of Understanding (SMoU) has been agreed with the authorities, which includes the new deficit target for 2009 (3.9%), which is inscribed in a new deficit reduction strategy with the aim to bring the deficit below 3% of GDP in 2011. The second SMoU also includes a set of additional measures that the Government has announced in support of this revised strategy. The Second Supplemental Memorandum of Understanding was signed on 10 June. The third instalment was disbursed on 6 July.
The release of the fourth instalment of the Community financial assistance will also be conditional upon progress in the given areas.