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Balance-of-payments assistance to Hungary

Following the expiry of the BoP programme on 3 November 2010, Hungary has been subject to post-programme surveillance (PPS). The PPS cycle foresees reviews in principle every 6 months to discuss recent developments and policy initiatives, at least until 70 percent of funds have been reimbursed.

So far four PPS review missions were carried out to Hungary: 4-8 April 2011, 9-21 November 2011, 16-28 January 2013, and 4-10 December 2013. The first three were conducted jointly with IMF post-programme monitoring (PPM) missions (PPM was closed in August 2013), and with the participation of ECB observers.

Basic facts about the programme

In response to the serious market turbulences and difficulties in refinancing government and external debt in the first half of October 2008, the Hungarian authorities applied to the EU, the IMF and the World Bank for financial assistance.

Following negotiations in October 2008 between the IMF and the Commission staff on the one hand and the Hungarian authorities on the other, an agreement was reached to provide multilateral financial assistance to Hungary with an overall amount of €20 billion, consisting of the following contributions:

  • European Community, €6.5billion under a balance-of-payments assistance facility approved by the Council on 4 November 2008;
  • International Monetary Fund, SDR 10.5 billion (around €12.5 billion) under an IMF Stand-by arrangement approved on 6 November 2008;
  • the World Bank, €1.0 billion.

The balance of payments assistance was designed in four separate disbursements, each tied to achievement of policy conditionality on fiscal consolidation, fiscal governance, financial sector regulation and supervision, and other structural reforms. The EU financial assistance was eventually disbursed for a total of €5.5 billion, instead of €6.5 billion initially scheduled:

  • €2.0 billion, released in December 2008 upon agreement on the Memorandum of Understanding (MOU);
  • €2.0 billion, released in March 2009;
  • €1.5 billion, released in July 2009.

Overall, Hungary received €14.2 billion of balance of payment assistance composed of €8.7 billion from the IMF and €5.5 billion from the European Union. No financial assistance was drawn from the World Bank.

The interest rate on the amounts disbursed by the European Commission is 3.25% for the first two installments and 3.625% for the third one, with repayments started in 2011.

The first instalment has been fully repaid on 9 December 2011. EUR 3.5 billion are still outstanding; EUR 2 bn will mature on 7 November 2014 and EUR 1.5 bn on 6 April 2016.

Request for a second BoP assistance programme

On 21 November 2011 Hungary requested a second (precautionary) financial assistance from the EU and the IMF against the background of deteriorating financing conditions. The ECOFIN Council of 30 November took a favourable decision in principle. Problems with the respect for independent institutions (notably the central bank) delayed the start of negotiations.

Eventually, negotiations were limited to one official round (between 17-25 July 2012) as Hungary was successful in financing itself through the international market and did not request further assistance. For example, the country raised USD 3.25 bn in 2013 and was able to redeem before schedule all reimbursements of the 2008-2010 Stand-by Arrangement (i.e. the Fund equivalent of an EU BoP programme) to the IMF.

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