Hungary has decided at the last minute not to take any loans under the EU's Recovery and Resilience Facility (RRF), meaning that it has had to redraw its recovery fund plans, for which the official deadline is April 30.
Hungary will avail itself of the full amount of grant money available to the country in the framework of the RRF, but would draw the RRF credit line only for project-based financing on a case-by-case basis, cabinet chief Gergely Gulyas said in a weekly press briefing on April 29.
Under the RRF, Hungary could receive HUF2.5 trillion (€6.9bn) in grants and HUF3.4 trillion (€9.4bn) in loans.
The decision follows talks between Prime Minister Viktor Orban and European Commission President Ursula von der Leyen on the NextGenerationEU recovery plan last Friday. There has been no detailed read-out of those talks but according to media reports the Hungarian strongman was told that drawing RRF money would require an overhaul of the country's deeply corrupt public procurement process.
Hungary has denied an earlier Reuters story that said the Commission was deeply worried about public procurement in the country and that it had demanded reform before the Orban government could access the new funding line. According to the leaked EU report seen by Reuters, the country's "competition in public procurement is insufficient in practice," adding that that was linked to "systemic irregularities" that "led to the highest financial correction in the history of (EU) structural funds in 2019".
By contrast, the Hungarian government is 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.
"Hungary is among those countries in the European Union that believe the crisis should be managed with as little indebtedness as possible," Gulyas said, adding that the government can still tap the loans until the end of 2023.
Hungary sold some HUF2.3 trillion in FX bonds last year and is set to take out a further HUF4.5 trillion in loans in the coming years on projects like the Russian expansion of the Paks nuclear power plant, the construction of the Budapest-Belgrade railway line and the establishment of the campus of China's Fudan University. State debt surged to HUF38.4 trillion last year to 80% of the GDP with a 15pp spike.
Orban’s U-turn means that the country's entire recovery plan has to be rewritten and universities could be the biggest victims of the cutback, analysts commented, particularly now that many of them have been put under an opaque foundation structure. Legislation on the transfer of the vast majority of higher education institutions to private foundations headed by political appointees is raising concerns in Brussels. The government planned to use some HUF1.5 trillion of the HUF5.9 trillion on university developments.
The EU recovery plan's focus has drawn fire from goverment-controlled media. The EU set guidelines for using the funds, including promoting the green transition, smart, sustainable and inclusive growth and fostering social and economic cohesion among others. It also made social consultation a prerequisite but representatives of local governments, of which many are led by opposition parties, say there was no meaningful discussion about the use of EU funds.