Yesterday, the IMF approved a 17-month Stand-By-Arrangement to provide $15.7 billion in financial aid to Hungary, of which $6.3 billion was immediately made available. The remaining amount of the financial aid package will be “made available in five installments subject to quarterly reviews.” As previously announced, the EU and World Bank will also provide Hungary financial support. Earlier this week the European Council approved its $8.4 billion loan to Hungary.
Mr. John Lipsky, IMF’s First Deputy Managing Director and Acting Chair stated, “[t]he authorities’ comprehensive set of policy measures, supported by the 17-month Stand-By Arrangement under the Fund’s exceptional access policy, is designed to strengthen Hungary’s economy and thereby foster a reduction in financial market stress. The path of fiscal adjustment has been accelerated, liquidity provision to financial markets is being enhanced, a system is being put in place to ensure that high levels of capital in the banking system are maintained, and financial sector surveillance is being strengthened. These measures address Hungary’s most important vulnerabilities and should therefore underpin an improvement in investor confidence.”
The Arrangement provides for the implementation of the following key measures by the Hungarian government:
- Fiscal Adjustment: Specifically, the “program envisages a large structural fiscal adjustment of 2½ percent of GDP with emphasis on expenditure measures, consistent with the need to reduce the country’s large public sectors.” To fulfill this broad objective a “rules-based fiscal framework will also be introduced.”
- Enhancement of Bank Capital: Implementation of certain measures that will provide “capital and resources to finance a guarantee fund for interbank lending to establish a level-playing field for Hungarian banks in an international environment where their competitors already have access to similar guarantees.”
The IMF also announced yesterday its approval of a two-year Stand-By Arrangement to provide $16.4 billion in financial aid to Ukraine.