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Budapest's Debt Crisis Deepens Amid New Loan Discussions

Budapest's Debt Crisis Deepens Amid New Loan Discussions

The mayor of Budapest seeks further financing from the European Investment Bank, even as the city faces substantial existing debts.
Budapest is once again at the center of financial scrutiny as Mayor Gergely Karácsony pursues additional loans from the European Investment Bank (EIB) to fund the Rákosrendező development project.

This initiative comes at a time when the city is set to begin repayment on two previous EIB loans starting May 2024, creating further financial strain on the capital.

Government spokesperson Gergely Gulyás indicated that the city's leadership had not consulted with the government regarding the new loan request.

He remarked, "We do not know what the city intends to achieve, but we hope they will fulfill their legal obligations at Rákosrendező."

In previous statements, Mayor Karácsony mentioned he was in Luxembourg negotiating for a favorable loan to facilitate the Rákosrendező project.

He stated, "I am currently in Luxembourg seeking a discounted loan to ensure the successful realization of Rákosrendező."

Imre Mártha, CEO of BKM Nonprofit Zrt., the city’s utility provider, noted banks are already showing interest in offering loans to the capital.

He explained the city may place a mortgage on properties, allowing them to repay the loan as property sales generate income.

Budapest has a history of taking on substantial debts, often leading to financial crises.

A 2011 audit report revealed that long-term development loans in Budapest exceeded 172 billion forints by the end of 2010. This debt accumulation was primarily attributed to discrepancies between budget projections and actual outcomes, which were managed through ongoing borrowing under the previous mayor, Gábor Demszky.

In 2013, Prime Minister Viktor Orbán announced that the state would assume a total of 612 billion forints in debt from 1,956 municipalities, including 200 billion forints from Budapest.

Subsequently, in 2015, the state settled the outstanding 52.29 billion forints in debt that had been accrued by the capital’s public transport system, BKV.

Despite inheriting a surplus of 214 billion forints in 2019, Mayor Karácsony has added approximately 50 billion forints in debt by 2023. Under the authority of the City Assembly, the Budapest Transport Center (BKK) entered factoring agreements worth 50 billion forints with OTP Bank and K&H Bank, illustrating the capital's ongoing reliance on financial instruments to address fiscal challenges.

The 2024 audit report highlighted that Budapest had drawn down two EIB loan facilities amounting to 65 billion forints in 2021, with repayments beginning in May 2025. As of late 2022, the city's debt to financial institutions rose from 112 billion forints at the beginning of 2020 to over 160 billion forints by year-end.

Gulyás’s government has reinforced the requirement for municipal debt management to receive prior government approval following the state’s assumption of significant debts in 2013. Fidesz officials, including Sára Botond, criticized Karácsony’s approach, suggesting it mirrors the fiscal mismanagement of previous administrations and poses risks for Budapest’s financial future.

The political landscape regarding debt management in Budapest continues to evolve as the city seeks additional funding avenues in an increasingly complex fiscal environment.
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