Hungary seeks to buoy growth by pre-financing EU-projects

By bne IntelliNews June 15, 2016

The Hungarian government is set to allow businesses that win EU funded tenders to receive 50-100% of funds in advance, local press reported on June 15.

The modification of the rules on EU funds reflects the government's bid to support growth after feeble performances in the industrial and construction sector drove the Hungarian economy to a disappointing 0.8% q/q contraction in the first quarter. The release of the data last month prompted an emergency meeting called by Prime Minister Viktor Orban.

Driven by a drastic cut in EU funded projects, Hungary’s construction output plummeted 29.8% y/y in April, the fourth month of huge decline in a row. Hungary has said it is accelerating the process to start EU funded projects in order to soften the impact on the economy.

In the 2014-2020 financial cycle the government plans to pay 50% of funds in advance to businesse that win EU-funded tenders, while the advance paid to public bodies could reach 100%. The new rules also allow anyone to request more than 50% of pre-financing if they can present a liquidity plan that supports the request.

According to reports, however, the European Commission opposes the high level of advance payments, saying it implies too much financial risk and is not in line with EU rules. At the same time, the Hungarian government insists on the need to introduce the changes, even if the advance for the projects has to be paid from the Hungarian budget.


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