## IMF Survey: IMF Agrees $15.7 Billion Loan to Bolster Hungary's Finances

_IMF News, November 6, 2008_

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## Bibliographic details
- Published: November 6, 2008

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### Program overview and purpose
- IMF Executive Board approved a $15.7 billion loan for Hungary to ease financial market stress and support longer-run reforms of government finances and the banking sector.
- The Stand-By Arrangement duration: 17-month Stand-By Arrangement for Hungary.
- The arrangement was approved under the Fund's fast-track Emergency Financing Mechanism and entails exceptional access amounting to 1,015 percent of Hungary's IMF quota.
- Immediate availability: $6.3 billion immediately available; remainder disbursed in five installments subject to quarterly reviews.

### Financing package composition
- Total financing package: $25 billion.
- European Union commitment: €6.5 billion ($8.4 billion).
- World Bank commitment: $1.3 billion.
- Context: IMF also approved a $16.4 billion loan for Ukraine on November 5.

### Two key objectives of the IMF-supported program
- Implement a substantial fiscal adjustment so the government's debt-financing needs will decline.
- Maintain adequate liquidity and strong levels of capital in the banking system to restore stability in the financial sector and create conditions for economic recovery.

### Fiscal measures and public finance adjustments
- Program envisages a large structural fiscal adjustment of 2½ percent of GDP with emphasis on expenditure measures.
- Measures include reductions in the overall government wage and pension bill: nominal wage adjustments postponed and pension bonuses suspended.
- Low-income pensioners excluded from benefit reductions.
- Introduction of a rules-based fiscal framework to put fiscal sustainability on a permanent footing.
- Rationale: reduce the large size of the public sector to ease short-term financing pressures and improve medium-term debt sustainability.

### Banking sector measures
- Preemptive recapitalization of eligible banks to ensure high capital levels.
- Strengthening of the supervisory and crisis management abilities of the Hungarian Supervisory agency.
- Banking sector support package includes provisions for added capital and resources to finance a guarantee fund for interbank lending.
- Objective: ensure banks are sufficiently strong to weather the imminent economic downturn and reduce the risk of losses from balance-sheet mismatches.

### Macroeconomic context and vulnerabilities
- Hungary population: a country of around 10 million people.
- Hungary joined the European Union in 2004.
- High external debt levels: 97 percent of GDP at end-2007.
- Balance-sheet mismatches and high external debt reduced investor appetite as global liquidity declined and risk aversion rose.
- Despite policy strengthening since 2006, Hungary was hit hard by global deleveraging and rising perceptions of counterparty risk.

### Economic outlook and projections
- Growth: projected to contract to -1 percent in 2009 from around 1¾ percent in 2008.
- Recovery: growth not expected to resume until 2010 and converge towards its estimated potential of 3 percent until after 2011.
- Inflation: peaked at 9 percent in early 2007; projected to reach 4 percent at end-2009.
- Transmission channels: weak private consumption and investment due to sharp reduction in new bank lending and exchange rate depreciation.
- External environment: slow recovery expected because slowdown is occurring in Hungary's main trading partners and global deleveraging will leave less foreign capital available.

### Key elements and policy implications
- Fiscal: substantial structural adjustment of 2½ percent of GDP, expenditure-focused, rules-based fiscal framework.
- Banking: upfront bank capital enhancement, preemptive recapitalization, strengthened supervision and crisis management, interbank guarantee fund financing.
- External: large external financing assistance to minimize the risk of a run on Hungary's debt and currency markets given the large stock of external debt.

*Source: IMF Survey online, November 6, 2008 — "IMF Agrees $15.7 Billion Loan to Bolster Hungary's Finances".*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Hungary and the IMF](https://www.imf.org/external/country/HUN/index.htm)
- [Ukraine gets IMF loan](https://www.imf.org/external/np/sec/pr/2008/pr08271.htm)
- [Factsheet: IMF crisis lending](https://www.imf.org/external/np/exr/facts/crislend.htm)
- [Hungary lines up loans](https://www.imf.org/external/pubs/ft/survey/so/2008/CAR102808B.htm)
- [IMF urges stimulus](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW110608A.htm)
- [World must act together](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW101308A.htm)
- [Quick, forceful action needed](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW100908A.htm)
- [IMF warns on failure to act](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW100708A.htm)
- [Rethink financial system](https://www.imf.org/external/pubs/ft/survey/so/2008/POL100708A.htm)
- [Emerging markets pulled in](https://www.imf.org/external/pubs/ft/survey/so/2008/NEW100708C.htm)
- [Stand-By Arrangement for Hungary](https://www.imf.org/external/np/sec/pr/2008/pr08275.htm)
- [Emergency Financing Mechanism](https://www.imf.org/external/pubs/ft/survey/so/2008/POL100908B.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar110608a_