In July, a meeting between the Hungarian authorities and the International Monetary Fund (IMF) took place. This was not the annual meeting as it is only due at the end of the year. Hungary did not ask for financial assistance. Therefore, it is certain that replacing the missing EU funds was not the goal. However, there are no records of the meeting which raises some questions as to what the reason was behind the sudden meeting.
Szabadeuropa.hu reported about the visit of IMF which took place between 27 June and 5 July. Usually, the IMF publishes the yearly reports a few days or weeks after the meeting takes place. However, this time, there were no reports made by the IMF or the Hungarian government. The IMF confirmed that this was not the annual meeting, but also that Hungary has no credit agreements with the international organisation.
A meeting takes place annually in the first half of the year, where experts consult about the current situation, said the finance minister. There is no need for the help of the IMF according to economists. Currently, there is no shortage of investors and government bonds are sold at the expected rate. Therefore, there is no hindrance in debt financing. It just costs more for the state to acquire funds from the population.
The energy crisis is behind everything
The current account deficit is caused by the raised energy prices, according to Mihály Varga finance minister. The cost of natural gas increased tenfold while the cost of electricity eightfold. This cost increase is naturally visible in the worsening balance of payments in the country. Analysts say that there is no need to panic as the situation is still manageable. But there are pessimistic scenarios in which the country would have to apply for financial aid. Emergency plans are only necessary if the price of natural gas permanently remains above EUR 350/MWh or if there is no agreement with the European Union, reported Zoltán Török economic analyst.
The situation is grave, but it is not at the level where Hungary should ask for financial help from the IMF, said Ákos Bod Péter, ex-president of the Hungarian National Bank. As Hungary is not part of the Eurozone, the European Central Bank could only provide minor help in case of liquidity problems. Large-scale help can only be expected from the IMF in case of a total crisis. If the negotiations about EU funds were to be cut, due to a downgrade in credit ratings, it could cause capital outflow from the country. This would be catastrophic, but it is a highly unlikely scenario at the moment.
IMF instead of the EU
Could the IMF replace EU funds in case the negotiations would not go as planned? The answer is no, as the IMF would not agree to any financial aid without the approval of the Committee of the European Union. Even during the 2008 financial crisis, the IMF said that the EU cannot be left out. In case of failed negotiations with the EU, the IMF could not replace the EU funds. It is therefore not possible to circumnavigate the European Union with other alternatives.
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