State to take over HUF 612bn worth of debt from municipalities, says PM

Budapest, October 27 (MTI) – The state will take over debt worth 612 billion forints (EUR 2.17bn) from 1,956 municipalities across the country, the prime minister announced on Saturday.

The state will take over entirely the debt of local councils of towns with a population of 5,000 or less, and a part of debt amassed by bigger municipalities, too, Viktor Orban said, addressing an event organised by his ruling Fidesz party.


The assistance will be calculated based on per capita local tax revenues, in a way that richer municipalities will be given less help, he said, adding that the extent of that help is in a range of 40-70 percent of the debt, depending on how much the given municipality collects from local tax.


Orban said it was time the government tackled the question of municipal debt and “saved localities”.


He said under the Socialist governments of 2002-2010, people and local governments were “systematically pushed into debt” and people close to the government then profited from this.


Orban said it must be prevented that local councils work up debt again.


Small towns of 5,000 heads and below shared 97.3 billion forints of debt, or 8 percent of all local council debt, a statement from the prime minister’s press office said. This will be taken over entirely.


Orban said that saving local councils from the “debt trap” will help them recover their independence. He added, however, that in order to prevent debts from again accumulating in the future, the entire system of local councils must be reformed. They should be given only those tasks that they are capable of fulfilling. The state will only support projects that enable rational development in the localities and the councils can also contribute to from their own resources, Orban said.


Municipalities of localities with a 5,000 plus headcount [of which there are 283] will get 514.8 billion forints worth of debt taken over in varying degrees, depending on how much their local tax revenue deviates from the average of their town category [based on size, population and other factors].


Hungary’s local councils have accrued 1,216.5 billion forints of debt over the years.


Fidesz executive deputy head and mayor of Debrecen in eastern Hungary Lajos Kosa said local councils maintained a stable alliance with the cabinet and parliament. The local councils have now asked the cabinet to create a closed system which enables them in the long term to finance operating costs from their revenues, he added.


Fidesz deputy head and mayor of Budapest’s 12 district Zoltan Pokorni said that different types of loans used by local councils should not be confused and the problems have resulted from the use of operating loans which have pushed the local councils into a debt spiral.


Head of the main opposition Socialists’ board and mayor of Szeged in southern Hungary Laszlo Botka said that the measures announced by Orban included many uncertainties and they may benefit mostly Fidesz-run local councils that have issued large amounts of bonds denominated in Swiss francs in the past five or six years.


He added that the local council reform will practically result in the elimination of local council activities in villages because they will completely lose their institutions and revenues.