Hungary grants €500 million loan to North Macedonia

The government of North Macedonia took a loan of 500 million euros from the Hungarian state-owned Eximbank on Tuesday, Seenews and Bloomberg report, citing an announcement by the government of North Macedonia. The loan is to be repaid over 15 years, with a highly favourable interest rate of 3.25 percent, starting only in three years.

It was first mooted in June this year that Hungary would give a €1 billion loan to North Macedonia at a favourable interest rate, following the victory of the Fidesz-allied VMRO in the country's May elections. In August, there was talk of a first round of €500 million, after which a second tranche for the same amount could be drawn down.

The €1 billion soft loan is the single biggest foreign loan Hungary has provided since the regime change. It is not clear, however, what Hungary stands to gain by lending when it is itself carrying a very large debt. In fact, it is worth noting that the Hungarian state is paying up to 15-20 per cent interest on some of its loans through premium government bonds, while the North Macedonians are being given this money at an interest rate of just 3.25 per cent.

If the North Macedonian government were to borrow from the market, it would currently be able to do so at an interest rate of around 6 percent. Thus, with the Hungarian loan's interest being just 3.25 percent, they stand to save €14 million a year.

According to a previous Népszava article, the loan is, among others, needed to continue construction on a motorway as well as other infrastructure investments, while half of the amount will be going to local governments with the goal of boosting the local economy. The second package, due in January 2025, could help repay a loan taken out earlier, the article said.

According to Seenews, part of the loan would be passed on to local businesses, also at a preferential interest rate. The North Macedonian government says this could boost investment and help their economy grow.

In North Macedonia, the right-wing opposition won the May presidential and parliamentary elections, with Fidesz's North Macedonian ally VMRO-DPMNE taking 45 percent of the vote and ousting the Social Democrats, who have been in power for seven years.

The previous prime minister of VMRO was Nikola Gruevski, who led the country for ten years untl he was evacuated from the country in 2018 in Hungarian diplomatic cars to escape the legal proceedings against him. Gruevski has since been living in Hungary as a refugee. He was sentenced to nine years in prison in absentia, but the Hungarian government has consistently refused to extradite him.