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72 Opinion
bne October 2021
Prime Minister Viktor Orban has won round one against European Commission President Ursula von der Leyen.
Hungary's surprise debt issuance demonstrates the EU's financial whip is not working
Gunter Deuber and Stephan Imre of Raiffeisen Research in Vienna
Hungary was the surprise issuer on international markets this week. In contrast to earlier plans to not issue any hard currency government debt in 2021, Hungary suddenly rushed to international markets to place a multi-part dollar and euro deal.
A cumulative US$4.25bn (€3.6bn) was placed through a dollar double tranche (10-year and 30-year maturities), followed by €1bn of a seven-year euro-denominated sovereign eurobond the day after (15 September). According to the Hungarian debt management agency (ÁKK), the change in the funding strategy has been triggered mainly by a possible delay in the disbursement of the “pre-financing payment” in the framework of the EU Recovery and Resilience Fund (RRF).
The disbursement of the pre-financing payments to other EU members already started during the summer. This is aimed at
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kick-starting the implementation of the investment and reform measures outlined in the respective recovery and resilience plans (RRP). Yet while Hungary’s RRP is still subject to approval, we believe that Hungary’s rush to secure alternative funds was not solely triggered by a possible delay of this pre-payment.
In fact, the amounts that we are talking about are relatively small. In the case of Hungary, the pre-financing payment amounts to 13% of the requested total €7.2bn in grants for projects under the RRF, which would equal €0.94bn in case of full allotment. Needless to say, any new state debt is also not a good alternative to grants from the EU Recovery and Resilience Fund (RRF). The latter do not add to the public debt bill in accounting terms.
So why did Hungarian authorities then rush into this big issue?