Hungarian request for RRF loan boosts forint

Hungarian request for RRF loan boosts forint
Rural development Minister Tibor Navracics (right) held talks with EU commissioners Johannes Hahn and Mariya Gabriel in Brussels on January 25. / Facebook/Tibor Navracsics
By Tamas Csonka in Budapest January 26, 2023

Hungary will ask for the €9.4bn credit leg of the EU's Recovery and Resilience Facility (RRF), according to a government decree issued on January 25. The Hungarian forint, one of the worst performers in Europe in the past year, jumped on the news, trading below 386 versus the euro.

Regional Development Minister Tibor Navracsics also signalled the government’s readiness to make concessions in the ongoing debate over political appointees to universities run by public foundations, which caused the European Commission to cut Budapest from the Erasmus + grant programme. 

A decree issued on Wednesday gave a mandate to Navracsics to start negotiations with the European Commission to draw down the credit leg of the EU's Recovery and Resilience Facility (RRF). The size of the loan would depend on plans detailed plans submitted by Energy Minister Csaba Lantos, local media writes.

For long, the Hungarian government was painting its decision not to draw the credit line as coming from its commitment to fiscal probity, despite the fact that it has taken out some much more expensive loans from Russia and China in recent years. Earlier this month, state debt manager AKK issued $4.25bn worth of dollar-denominated benchmark bonds to pre-finance some of the EU-funded projects.

The government has signalled earlier that it would draw the RRF credit line only for project-based financing on a case-by-case basis. Hungary has time to take out the loan until the end of 2023.

The majority of the funds would be allocated to support the green transition as part of the REPowerEU initiative to reduce dependence on Russian fossil fuels and move forward with the green transition. The government is planning to multiply spending on energy infrastructure investments, especially in the electricity sector, to meet growing electricity demand.

The announcement on tapping the credit line comes a month after the European Commission gave the green light to Hungary to access €5.8bn from the post COVID-19 recovery fund 15 months after submitting its plan.

The payout was linked to meeting 27 "super milestones" set by the European Commission, including improving the transparency of public procurements in order to curb rampant corruption, as well as judicial reforms to restore the damage to the rule of law by Prime Minister Viktor Orban's semi-authoritarian regime. 

In other news, Budapest has made concessions to smooth out the latest round of conflict with the European Commission over the Erasmus+ programme. After holding talks with EU commissioners Johannes Hahn and Mariya Gabriel, Navracsics said the government will address the European Commission's concerns and amend legislation by March.

This would pave the way for the removal or resignation of government-appointed politicians from the boards of trustees at two dozen Hungarian universities operated by public-interest asset management foundations.

News emerged last week that some two dozen Hungarian universities operated by public interest asset management foundations were cut off from the Erasmus grants and Horizon Europe research and innovation funds

The Commission informed Hungary about the conflicts of interest at foundation-run universities, as current rules allowed senior politicians to participate in decision-making relating to the disbursement of public funds, including EU money.

In a bill adopted on November 1, Hungary allowed the possibility for senior political executives to have other remunerated employment at the board of trustees, the EC said in the document sent to Budapest.

Despite the notifications, the government has not changed legislation and when the story broke they threatened to take legal action against the Commission.

The European Commission's concerns on the conflict of interest were also raised in the Rule of Law report on Hungary in July.

The government overhauled the higher education system in 2021 as top colleges and universities were moved into public foundations, led by government-appointed boards of trustees for a lifelong term, many of them practising Fidesz politicians or cabinet members.