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State to take over HUF 95 bln-100 bln of local council debt this year

The state will take over all of the debt of local councils in communities with populations under 5,000 before the end of this year, state secretary for local governments András Tallai said on Wednesday, after the measure was approved at a cabinet meeting.

The state will take over between 40% and 70% of debt from local councils in larger communities by the middle of 2013, Tallai said.

The takeover of debt from the communities with fewer than 5,000 inhabitants will require state support of HUF 95 billion-100 billion, based on data from the end of last year, he said. The takeover of at least HUF 512 billion debt from the larger municipalities will translate as an annual fiscal burden of HUF 50 billion-100 billion, he added.

Tallai said both the 2012 and 2013 budgets will have to be modified to accommodate the transactions. He said details will be worked out by the Government Debt Management Agency (AKK) by June 30, 2013.

Prime Minister Viktor Orbán said late in October that the state would take over HUF 612 billion of debt from 1,956 municipalities across the country.

Hungary's local councils had just under HUF 1,300 billion of debt at the end of Q2, the latest data from the National Bank of Hungary show. About HUF 913 billion of the amount was owed to banks operating in Hungary and HUF 206 billion to foreign entities. About HUF 615 billion of the debt was loans, including HUF 460 billion from banks operating in Hungary, and HUF 507 billion was in bonds, including HUF 454 billion subscribed by Hungarian banks. Three-fourths of the bond debt was denominated in Swiss franc and 15% in euro. About 44% of the local council loans were denominated in foreign currency.