Orban asks EU to disburse RRF grant and loan, citing refugee crisis and sanctions

Orban asks EU to disburse RRF grant and loan, citing refugee crisis and sanctions
In a letter addressed to European Commission President Ursula von der Leyen, Viktor Orban said extraordinary circumstances require extraordinary measures.
By bne IntelliNews March 23, 2022

Hungarian Prime Minister Vikor Orban has asked the European Union to disburse the grants and loans under the Recovery and Resilience Facility (RRF), citing the adverse impact of the Ukraine war on the economy, the refugee crisis and sanctions. In a letter addressed to European Commission President Ursula von der Leyen, Orban said extraordinary circumstances require extraordinary measures.

In an English-language letter made available to state news agency MTI, Orban said "the war in Ukraine poses an unprecedented challenge to the member states of the European Union. The security risks, the burden of the humanitarian crisis, the economic consequences of the conflict, and the negative effects of EU sanctions are to a large extent borne by the countries protecting the European Union's eastern borders."

The government says that nearly half a million Ukrainian refugees have arrived in Hungary fleeing the war, and that number could multiply in the coming period.

"To this end, Hungary only asks for immediate and effective access to EU funds allocated to it, and to be able to use them in a flexible way for the purposes best suited to dealing with the crisis," he added

Hungary was eligible for €7.2bn in funding from the RRF, but Brussels has kept the money back, citing the lack of transparency in public procurements and the risk of corruption. Based on Hungary’s 2020 and 2021 economic performance, the final amount of RRF funds, if approved by the Commission, would come to €5.9bn.

Viktor Orban’s government turned down the €9bn loan under the RRF scheme, but now is making a U-turn on the question as Hungary’s economy is facing the fallout of a massive pre-election spending spree and the slowdown caused by the war. The plea to tap EU funds came on the day the National Bank slashed its growth outlook to 2.5-4.5% and upped its inflation forecast to 7.5-9.8%.

The budget deficit has widened to 45% of the full-year target by the end of February, lifted by pre-election handouts before the election, such as the HUF600bn (€1.6bn) tax refund to families and higher pensions and bonuses. Central price fixing of household energy prices are expected to cause billions of euros of losses for state energy giant MVM, which is not yet included in the budget planning.

The government began to pre-finance programmes under the RRF programme and expects that these funds will come in this year. Without these funds, Hungary’s budget deficit could swell to 10% of the GDP, former MNB deputy Julia Kiraly, the economic advisor to Peter Marki-Zay told bneIntellinews in a recent interview.

Finance Minister Mihaly Varga hinted on March 22 that the government would need to make adjustments in the budget after the election, given the budget overruns.

Brussels is unlikely to trigger the rule-of-law mechanism before the April 3 elections, taking into consideration the impact of the war and the refugee crisis on the country's economy, Bloomberg reported on March 14. The EU executive also wanted to avoid the impression of any interference in the crucial vote.

Fidesz has strengthened its lead over the united opposition with its neutral stand, with the message of "strategic calmness". The war has turned the election campaign upside down.

Fidesz spin doctors have capitalised on comments by Marki-Zay and now the main narrative of the ruling party is that the opposition wants to send soldiers and weapons to Ukraine, while the government is for peace and security.