Hungary was acting as an intermediary for China in providing the new North Macedonia government with a €500mn loan, which comes from the €1bn secured by Budapest from a consortium of Chinese banks earlier this year, investigative news site Vsquare confirmed on September 12.

According to press reports, North Macedonia’s Prime Minister Hristijan Mickoski had reached an agreement with Hungarian Prime Minister Viktor Orban after the VMRO party returned to power in May. VMRO's vice president revealed at the time that the loan would not come from Chine but would be extended by a EU and Nato member country.

The sum represents half of the €1bn that Mickoski pledged to secure following his electoral victory on May 8. The loan terms include a 3.25% interest rate, a three-year grace period, and a 12-year repayment period, which the prime minister described as highly favourable compared to current market conditions.

The Hungarian government secured and fully drew €1bn from a consortium including the Export-Import Bank of China and the Hungarian branch of the Bank of China in the spring.

The transaction was kept secret until the end of July when financial press reported the story based on the regular update of government debt data on the website of state debt manager AKK. Terms of the three-year floating loan, including interest rates and repayment terms were not disclosed, but according to recent comments by government officials, Hungary has turned to the Chinese partners to agree to make the conditions public.

The loan secured by Budapest is the single largest bank loan in the country’s debt portfolio, excluding bond issues,  exceeding the $917mn provided for the joint Hungarian-Chinese project on the extension and upgrade of the Budapest-Belgrade rail line.

The government announced that funds raised would be used to finance general infrastructural investments, including transport infrastructure and energy, without going into details, but again there was no mention of extending part of the loan to another country.

According to Vsquare, Hungary originally hoped to secure a much bigger loan during Xi Jinping’s visit to Budapest in May as a substitute for the country’s frozen EU funds.

The EU has blocked €6.3bn from cohesion funds to Budapest because of concerns over the rule of law issues, corruption, and the lack of judiciary reforms. Additionally, some €2.5bn of reconstruction funds are blocked due to the treatment of refugees, discrimination against the LGBT community, and violations of academic freedom.

The Orban government has failed to comply with 'super milestones', or conditions set by the European Commission to access €6.3bn from the Recovery and Resilience Facility (RRF) and €3.9bn of the credit leg of the programme.

Orban and North Macedonia's radical rightwing VMRO are allies but it  remains a big question why the Hungarian government provided financial assistance to a foreign government at a time when it faces severe financial difficulties of its own.

By the end of August, the budget deficit ballooned to 103% of the target set earlier this year, or 73% after the deficit target was raised to 4.5%. Analysts said more fiscal measures are needed to keep the budget gap below that level and possibly even more stringent measures to bring it below 3% in line with targets within the EU's Excess Deficit Procedure rules.