Indebted Hungary. Orban's government pays huge sums in interest on bonds

CIt is costing Hungary enough money to pay back billions of euros in EU funding that the European Commission halted due to suspicions of corruption and violations of the law under Prime Minister Viktor Orbán's government. The country must “make up” the missing money. And it had to significantly increase the volume of loans in the financial markets. However, interest on government bonds is beginning to put a significant burden on the Hungarian budget.

In the first three quarters of last year alone, the government in Budapest paid 2.5 trillion forints (about 160 billion crowns) in interest. According to the Hungarian Statistics Office, this is twice as much as in the same period in 2021.

Hungary's central bank estimated in December that the cost of servicing public debt was 4.3 percent of gross domestic product (GDP) in 2023. According to him, this year they will decrease to only 4.2 percent.

Hungary now has the highest debt service costs relative to the size of the entire EU economy. The country also overtook Italy, which spent 3.8 percent of GDP on public debt service last year. The Czech Republic currently requires 1.3 percent of GDP for bond interest.

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Another problem for Hungary is that bond issues are in the vanguard, and retail bonds have to pay a high premium relative to inflation. Last year, it averaged nearly 18 percent in Hungary, according to central bank estimates. So, this week Hungary issued a bond in dollars.

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On the other hand, the fraction of Hungarians who bought them benefited from higher interest rates on the bonds. Hungarian Economy Minister Morton Nagy believes 2023 will support a post-recession domestic consumption recovery.

In total, Hungary has frozen 21 billion euros, or more than 500 billion crowns. However, Orbán's government is not without EU funding. In mid-December, before the last EU summit, the European Commission granted Hungary ten billion euros (about 245 billion crowns). It did so after Hungary published further judicial reforms in the Official Gazette.

Hungary uses the threat capability arising from EU rules requiring unanimity on “twenty-seven” key issues. An example is the 50 billion euro aid package to help Ukraine fight against Russian aggression over the next four years. For this, the structure of the multiannual EU budget from 2021 to 2027 must be changed.

But Hungary also “kicks” Russia in other ways. For example, he wants to block the extension of the Schengen area of ​​free travel to Bulgaria unless the country cancels the transit fee for Russian gas transported through Bulgarian territory.

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