The Hungarian state has taken out a one billion euro loan from China without any announcement from the government, and the amount was already drawn down in April.
The move was first reported by Portfolio, a Hungarian media outlet, based on data of the Hungarian Public Debt Management Centre (Államadósság Kezelő Központ – ÁKK) published on its website.
The loan was taken out by the Hungarian state from the Development Bank of China, the Chinese Eximbank and the Hungarian branch of the Bank of China for a three-year term. The details of the loan are not known, except that the loan has a floating interest rate.There is no information on the repayment schedule nor on the exact amount the Hungarian state, which already had a debt of EUR 133 billion in February, will have to repay. The Chinese loan topped this with 0.6 per cent, which is the biggest outstanding debt of the Hungarian state, not including debenture bonds.
The government has recently sought to restructure its debts, looking to obtain loans domestically rather than from abroad by encouraging the population to buy state bonds. This is in stark contrast to the Chinese loan, which the government appears to have arranged quietly [because usually the government announces new debt immediately while in that case, the announcement for the new loan taken in April came at the end of July].
This loan is unrelated to the Chinese-funded Budapest-Belgrade railway, which experts estimate will take 979 years to pay for itself. To accomplish that project, the Hungarian state had borrowed another EUR 820 million at current exchange rates, also from China’s Eximbank.
It’s not clear what it is for
Portfolio points out that the government normally informs the public about these types of loans, but in this case it did not. “Thus, beyond the official justification in the ÁKK database, it is not clear exactly what the purpose of the loan was.”
There are plenty of potential items that could make the new loan necessary: the Hungarian state bought Budapest’s Liszt Ferenc International Airport for €3.1 billion, by the end of the first quarter, the state budget had already reached its deficit target for the entire year, and in June there was a further deficit of €108 billion recorded.
If that was true, why would China forgive or refinance loans?
The chinese say it’s mutual development, and their actions are consistent with that.
Because they get a RoI from the door it opens to them in other countries. Give a loan and in exchange they allow you to build a port when they wouldn’t otherwise? Well the loan was just part of the cost!