The board of the European Bank for Reconstruction and Development (EBRD) has adopted a new country strategy for Hungary that sets out the framework for the bank’s work in the country for the period 2021-26. The implementation of the strategy will be reviewed in 2023.

The Hungarian economy has demonstrated strong economic growth with substantial inward investment, record low borrowing costs and a growth in credit, which has supported private sector employment and consumption until COVID-19 caused a deep recession in Q2

The economy is also strongly exposed to the economic outlook of the eurozone as the country has pursued an export-led growth model dominated by the automobile industry.

The tight labour market and significant real wage growth may pose a challenge to cost competitiveness. This could be overcome with further growth of productivity and improving resource allocation.

Hungary has been a significant beneficiary of EU structural funds, which reached €25bn in the last seven-year budget, The EBRD says that the government needs to leverage EU funding more effectively, especially that linked to the Recovery Fund, and engage in co-financing with IFIs and the private sector.

The EBRD said it will pursue support for productivity improvements, through innovative financing and green investments as strategic priorities, as well as provide temporary support, as needed, for the country’s recovery from the coronavirus pandemic.  

It will continue to focus on developing capital markets and on opportunities to deploy equity and innovative investment products and, where appropriate, will seek to address inclusion and governance issues. There will be a clear focus on supporting projects in the areas of resource and energy efficiency, decarbonisation and renewable energy.

The London-based development bank has invested close to €3bn in Hungary through 190 projects since 1991.