Hungary Submits Plan for Using EU Recovery Funds

Hungary’s government submitted plans to Brussels on how the country would utilize more than 2,500 billion forints (EUR 7bn) distributed from the bloc’s recovery and resilience fund (RRF). The money can be spent on strategic development projects over the next six years. Earlier, the Cabinet indicated it would not make use of the EU’s credit facility offered to member states.

The RRF is the key instrument at the heart of NextGenerationEU, the EU's plan for emerging stronger from the COVID-19 pandemic. The fund will provide up to EUR 672.5 billion to member states to support investments and reforms. This consists of grants worth a total of EUR 312.5 billion and EUR 360 billion in loans. The RRF will play a crucial role in helping Europe emerge stronger from the crisis, and securing green and digital transitions. The Hungarian plan is structured around the key policy areas of green transition, healthcare, research, digital, cohesion and public administration. The plan includes measures in sustainable transport, energy transition and the circular economy. Projects in the plan cover the entire lifetime of the RRF until 2026. The plan proposes projects in five of the seven European flagship areas.

Focus on health care
The development of the health system is the plan’s most significant element, taking up 34.1% of available resources, Szabolcs Ágostházy, state secretary in charge of EU developments said. The other two focus areas include environmentally friendly transport and the comprehensive development of the Hungarian education system, including higher education, vocational training and adult education, he said. The Cabinet intends to spend 25% and 20.4% of the EU funds on these two areas, respectively.Hungary’s RRF fully meets common EU targets, with climate protection and digitalization developments included in every area, Ágostházy said.

EU approval 
The European Commission will assess the Hungarian plan within the next two months based on eleven criteria. The assessment will include a review of whether the plan contributes to effectively addressing all or a significant subset of challenges identified in the relevant country-specific recommendations. The Commission will also assess whether the plan dedicates at least 37% of expenditure to investments and reforms that support climate objectives and 20% to the digital transition. Based on a proposal by the Commission, the Council will have four weeks to adopt the Commission’s proposal. The Council's approval of the plan would pave the way for the disbursement of a 13% pre-financing to Hungary. This is subject to the entry into force of a decision by the Hungarian government on the allocation of own resources for the projects included in the plan.

No credit 
Similar to the majority of member states, Hungary will not tap the credit line made available under the RRF, the politician said. This is a marked change from the government’s earlier stance as the Cabinet planned to apply for the full funding of the EU’s coronavirus recovery fund, totaling nearly 5,800 billion forints (EUR 16.1bn). The about-face came after Prime Minister Viktor Orbán’s meeting with European Commission President Ursula von der Leyen. Following the meeting in Brussels, it was revealed that Hungary would forgo the HUF 3,400 billion (EUR 9.1bn) credit line of the package. The government argued that it wants to restart the economy with the lowest possible foreign debt ratio but some experts believe the decision has more to do with the strict conditions the EU is imposing on the use of the loans, which would tie the government’s hands.Weakening the government’s argument is the fact that Hungary took out a total of HUF 2,300 billion (EUR 6.4bn) in foreign currency loans last year on much less favorable terms than the EU’s. The option to apply for the RRF credit line will be available until 2023, leaving the door open for the government to reconsider.