Hungary will be able to use the facility’s funds up to a total allocation of €5.8 billion in grants. This financing will enable Hungary to foster its economic recovery from the COVID-19 pandemic and finance the green and digital transitions.

Hungary’s Reforms and investments

Hungary’s plan includes a set of reforms and investments that represents a comprehensive and adequately balanced response to Hungary’s economic and social situation.

The Hungarian plan devotes 48.1% of its total allocation to measures that support the climate objective. The measures included in the plan are expected to contribute to the decarbonisation and energy objectives as identified in the National Energy and Climate Plan 2021-2030. Investments in residential solar power systems and the strengthening of the electricity grid, combined with comprehensive reforms, aim at facilitating the development and connection of renewable energy sources. The renovation of buildings will decrease their impact on overall greenhouse gas emissions and improve air quality. Measures to make transport more sustainable, such as investments in railways, the deployment of electric buses and a reform of the tariff system, are expected to result in a cleaner, smarter, safer and more efficient transport sector.

Hungary’s plan devotes 29.8% of the total allocation to support the digital transition. This includes measures to digitalise and improve education and public administration. The digitalisation of transport, energy and healthcare is expected to foster long-term economic development. The plan fulfils all relevant criteria and that none of the measures therein included is expected to significantly harm the environment, in line with the requirements laid out in the Recovery and Resilience Facility (RRF) regulation.

The plan also includes a comprehensive set of key institutional reforms to strengthen the rule of law, which are also expected to improve the efficiency and resilience of the economy by reinforcing the fight against corruption, promoting competitive public procurement and strengthening the independence of the judiciary.

The EC’s projected average European Union GDP growth rate for 2021, is expected to be 4,2 %.

According to the EC, Hungary’s GDP growth rate for 2022 is projected to be 5,5 %.

The European Commission forecasts that the average household consumption in Hungary, is expected to rebound, thanks to steady real income growth, combined with the increased capacity and wildness of consumers to spend, as restrictions are lifted.

The EC expects the annual inflation rate for Hungary to decrease in 2022 to 3,2 %.

This is an updated, increased forecast from 4.3 % announced earlier this year in April. This comes in at almost an extra 2 % projected GDP growth rate for this year.

During April of this year, the IMF projected that Hungary’s Gross Domestic Product (GDP) growth would be expected to rise to 5.9 % in 2022. Its to be expected that the IMF will also sometime soon provide an updated projection for Hungary’s economic growth for next year – 2022.

The IMF predicts that average annual inflation will pick up to 4.1 % this year before decreasing to around 3.5 % in 2022.

The Hungarian National Bank (HNB) estimates that the average annual inflation rate for this year (2021) will be around 3.8 – 3.9 %, which is slightly above the previous forecast last year in December, where the HNB forecast had a range of between 3.5 – 3.6 % for 2021.

The HNB forecast for the CPI inflation rate for 2021, is projected to be around 2.9 – 3 %; however it has kept it’s projected 2023 inflation forecast unchanged at 3 %.

The Hungarian Central Bank foresees that the economy will expand by between 5 %- 6 % during the course of next year (2022), and by 3.5 % in 2023.

EBRD said that it will follow through on support and assistance for productivity enhancements, by way of new dynamic financing mechanisms and green developments, as part of their strategic preferences. EBRD also indicated that they would help provide intermediate transitory support, as would be required in support of Hungary’s economic recovery program, in the wake of the coronavirus pandemic.

In Hungary the EBRD will mainly focus on:
– Specific areas where growth disparities prevail and where the Bank can be additional support, including in the efforts to overcome the impact of Covid-19.

– Developing capital markets and on opportunities to deploy equity and innovative investment products, and where appropriate seek to address inclusion and governance issues.

– support projects in the fields of resource and energy effectiveness, decarbonisation and renewable energy. The EBRD Bank will continue to cooperate and work together with the authorities, including with: Ministry of Innovation & Technology on energy efficiency; and the National Bank on green bonds and other green commercial monetary products.

Since 1991 the EBRD invested about 3 billion Euros in Hungary through 190 projects.

The European Bank for Reconstruction and Development’s new country strategy acknowledged that the GDP growth for Hungary was the strongest among its comparative rivals over the past few years between 2014 and 2019, where the the average GDP growth rate amounted to 4.1 % for Hungary, which was substantially higher than the average growth rate of 3.3 % observed for other CEB economies.

Hungary had reported the most substantial GDP growth in the CEB (Council of Europe Development Bank) region, at 4.6 % in 2019. Overall, investment level was the highest in the region in 2019, at 28.6 % of GDP, significantly higher than the CEB average of 21.5 percent of GDP. The EBRD expects the Hungarian economy to rebound into a growth cycle this year, after the recession caused by the coronavirus pandemic.

Below is the outline of the International Partners’ Complementarity in EBRD Business Areas:

The Stable Outlook mirrors Fitch’s expectation of Hungary’s economic recovery and the economic financial consolidation, that would support the public debt ratio to continue its downward projectory, from 2021.

Fitch expects the Hungary’s general government deficit to diminish to 6.4% of GDP during 2021 and reduce even further to 6.1% in 2022.

Fitch forecasts that Hungary’s economy will bounce back in 2021, expanding by 4.9%, supported by finance from the European Union budget and covid pandemic recovery fund. Fitch estimates that in 2022, Hungary’s GDP growth rate will rise to 5.5%.

According to Fitch, Hungary’s banking sector is deemed to be liquid and well – capitalised.

Hungary’s external finances have consistently improved over recent years, supported by strong export performance and constant flows of direct investment into the Hungarian economy.

Since last year in 2020 the government of Hungary offered, to cover half of the value of an investment, to international corporates and businesses planning investments in Hungary, if workers were retained. This dynamic economic stimulus package has resulted in an unparalleled magnitude of FDI investment, and also more people presently at work in Hungary, than before the coronavirus crisis.

1435 Enterprises have participated in the investment incentive scheme, with investments amounting to 4.8 Billion Euros and as a direct outcome, 270 Thousand jobs have been saved and another 13 Thousand additional jobs have been created.

The Hungarian economy has substantially escalated its economic production output, since 2010 by 70 %; while over the past 7 years, international investors successfully executed 590 investments, totalling a combined value of 22 Billion Euros, which in turn created 99 Thousand new jobs.

The Hungarian Minister of of Foreign Affairs and Trade, Péter Szijjártó together with his Ministry and the Hungarian Investment Promotion Agency, are certainly to be commended and recognised for doing a sterling job of directing, supporting and pursuing pro-economic development and investment policies for the benefit of Hungary. These policies and initiatives have in turn also had a positive economic ripple effect on surrounding Central European states, as well as making a positive contribution to the EU’s economic development and growth.

Mr. Nagy, a former central bank top executive official, went further to indicate that the economy could show levels of growth of 5% – 6% this year (in 2021), and even potentially reaching an accelerated growth rate of between 6% – 7% during the course of next year – 2022.

According to the the Hungarian Prime Minister’s senior economic aide, the expansion and growth of the Hungarian economy, would be aided and driven by both private and public sector investments; and with this impetus he anticipate’s that Hungary will emerge from the crisis, with the fastest rate of economic recovery and growth in the Central European region.

Economists, financial risk assessors, sovereign credit agencies, etc utilise the debt-to-GDP method of evaluation, comparing annual state debt to economic productivity, as part of their assessments. In this sense lower levels of Debt – to – GDP ratio, will imply that the country has the capacity to honour its loans and manage its debts.

This ground breaking deal that was reached by all the EU member states comprise of €1.1 trillion, 7 year budget and €750 billion recovery package deal, over the period 2021 – 2027.

Hungary and Poland will be one of the EU’s biggest budget beneficiaries which will certainly assist both Nations to continue on their expected robust economic recovery and sustainable growth.

Poland will receive 173 billion euros of these funds.

Hungary’s share of this funding from the multi-annual budget and the recovery package will amount to about 40.7 billion euros, and furthermore will be entitled to an additional 10 billion euro loan; with these two contributions amounting to 2.8 percent of the country’s GDP.

In addition, Hungary will continue to receive cohesion funds amounting to 1.8 % of its GDP over the following 7 years.