Hungarian state quietly takes giant loan from China

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, portfolio.hu has discovered based on the data on the website of the Public Debt Management Centre (Államadósság Kezelő Központ – ÁKK). 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.

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.