The European Bank for Reconstruction and Development (EBRD) has adopted a new country strategy for Hungary that identifies the EBRD’s priorities as an investor and a partner in policy engagement in Hungary for the period 2021-26.
The Bank will pursue support for productivity improvements, through innovative financing and green investments as strategic priorities.
In addition, it will provide temporary support, as needed, for the country’s recovery from the coronavirus pandemic, which interrupted a period of strong growth.
Hungary registered the strongest GDP growth in Central Europe and the Baltic (CEB) region, at 4.6 per cent in 2019. And the economy demonstrated strong economic growth with substantial inward investment, record-low borrowing costs and a growth in credit, which has supported private sector employment and consumption until COVID-19 caused a deep recession in the second quarter of 2020. Despite the recently rising importance of domestic consumption, a massive exposure of the economy to global trade (more than 190 per cent of GDP) aggravates its vulnerability to disruptions to global supply chains from the coronavirus crisis.
The EBRD expects Hungary to return to growth in 2021 and will be available to support efforts to further increase productivity, improve resource allocation and leverage EU funding, especially linked to the post-COVID-19 recovery. The Bank will also engage in co-financing with international financial institutions and the private sector.
The civil society sent key messages to the EBRD including the necessity of a green economy transition and the challenges that come with it: there is a need for affordable and accessible renewable energy sources in synergy with energy efficiency improvements.
The EBRD finds that Hungary scores above average on most green indicators in the region, but low in comparison to EU countries. Hungary’s green economy transition will need to focus on investing in sound waste and material management and managing transition away from carbon-intensive sectors. In particular, the country needs to improve the energy efficiency of its buildings. Hungary has one of the most energy-intensive residential sectors in the EBRD region. Nearly 80 per cent of Hungarian homes fail to meet modern functional technical and thermal engineering requirements and the ratio is similar in public buildings. Another challenge is represented by waste recycling and recovery: despite some progress, more than half of the country’s waste is deposited in landfills, a higher proportion than its EU neighbours.
The EBRD plans to work with the National Bank of Hungary (NBH) on Green Bond introduction, including advancing incentives and potentially supporting initial issuances. Also, pursuing innovative transactions that are compliant with the Taxonomy Regulation, including greening the financial system and supporting both environmentally sustainable products and digitalisation.
The Bank will also support Hungary’s green transition, including achieving its nationally determined contributions, implementing its National Energy and Climate Plan and long-term renovation strategy, involving the renovation of building stock and support of circular economy business models.
All of this will happen by working with authorities, private sector investors and developers at the same time to define energy efficiency needs in residential and public buildings and the necessary support for e-mobility. In this regard, the EBRD plans to support municipalities as a co-financing partner (including using public support structures such as Invest EU) to deliver innovative funding structures involving the private sector that deliver measurable and sustainable green projects (European Green Deal). Finally, it will help financing new renewable energy (such as PV generation, geothermal) and related infrastructure (like storage, connectivity).