The state will take over debt worth 612 billion forints (EUR 2.17bn) from 1956 municipalities across the country, the Prime Minister announced on Saturday. Hungary's local councils have accumulated 1216.5 billion forints of debt over the years.

The state will take over the entire debt of local councils in towns with a population of 5000 or less, as well as a part of the debt accumulated by larger municipalities, Prime Minister Viktor Orbán said.

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. Prime Minister Orbán said it was time the government tackled the question of municipal debt, since under the Socialist governments of 2002-2010, people and local governments were "systematically pushed into debt".

Prime Minister Orbán 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 accumulating again, the entire system of local councils must be reformed. They should only take on tasks that they are capable of fulfilling. The state will only support local projects that enable rational development and that the municipalities can also partially finance from their own resources, the Prime Minister said.

The 97.3 billion forints worth debt of small towns with a population of 5000 or less will be taken over entirely, which amounts for 8% of all local council debts. From municipalities with more than 5000 inhabitants, 514.8 billion forints worth of debt will be taken over in varying degrees, depending on how much their local tax revenue deviates from the average of their town category. This will be calculated based on their size, population and other factors.

Mayor of Debrecen Lajos Kósa 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. Mayor of Budapest's 12th district Zoltán Pokorni said that different types of loans used by local councils should not be confused, adding that problems have resulted from the use of operating loans which have pushed them into a debt spiral.

(Prime Minister’s Office)