The recently completed taking over of the debt of local governments marks a shift from a period of consolidation to that of stimulating growth, Minister for National Economy Mihály Varga said at a press conference in Kecskemét.

Mihály Varga said that the Government took over the debt of local government in three steps. The process which is coming to an end now makes the repayment of debt, which had ballooned to six times the original amount between 2002 and 2010, much more economical. In addition, municipalities are thus freed from paying annual instalments totalling some HUF 160-180bn and they in turn are encouraged to draw up and put in place new local and regional development concepts, the Minister stressed.

He emphasised that in the eight years when Socialist-led governments were in power the debt of local governments swelled from HUF 191bn to HUF 1240bn. This had stemmed from a “flawed economic policy” which kept transferring assignments to settlements while it failed to provide adequate state funds to cover them.

The Minister called the assumption of the debt of local government an unavoidable step required for stabilizing the country’s economy. Having recognized this fact, in 2012 the Government first consolidated debt totalling HUF 196bn for counties and later of HUF 74bn for 1710 settlements with populations of less than 5000 people.

As the next step, the Government further assumed 40-70 percent of debt, worth HUF 610bn, accumulated by 227 settlements with populations of more than 5000 inhabitants. Mihály Varga pointed out that on top of the hitherto consolidated debt of HUF 880bn in the third phase the Government settles the still unconsolidated debt of the remaining 278 settlements. This means for Kecskemét that following last year’s debt easing of HUF 9.1bn now further HUF 6.9bn of debt is taken over by the state.

The Minister added that parallel to the launching of the programme, local governments adopted tighter fiscal policies that have yielded results which manifested themselves already in the “surprise figures” of last years, as instead of falling in the red municipalities in Hungary posted a surplus.

Kecskemét Mayer Gábor Zombor (of Fidesz-KDMP) said at the event that Kecskemét used to take out only development loans as this was what the future of the county seat had required. He added that they have a long-term economic development plan for which they obtained development funds of HUF 110bn over the past 6-7 years and created 6000 new jobs in the city. In addition, the local government spends some HUF 7bn of continuously increasing local business tax revenues, which were up by almost 15 percent last year, on financing the development projects of local enterprises.

Responding to a question the mayor said that the Government’s debt assumption cuts debt financing costs by HUF 600-700 million per year which amount in the future will be spent on infrastructure investment projects.

(Ministry for National Economy)