Project description
On October 1, 2013, MIGA issued guarantees totaling €424.4 million ($574.9 million) covering a €400-million financing by a special purpose entity, Magyar Eximbank Secured Funding Limited (MESF) of Ireland, by Magyar Export-Import Bank (Exim) of Hungary. The coverage is for a period of up to five and a half years against the risk of non-honoring of sovereign financial obligations for 95% of the principal and interest on the notes issued by Exim. [i]
As Hungary’s official export credit agency—wholly-owned by the Hungarian state through the Ministry for National Economy—Exim’s liabilities will be secured by a government guarantee based on Hungarian law.
MIGA's guarantee enhanced the credit quality of the issue, lowering the longer-dated borrowing costs of Exim, thereby enabling these savings to be passed on to the Hungarian export sector. This will strengthen the sector’s competitive position in foreign markets.
Since the global financial crisis started in 2008, lending to Hungarian businesses has declined sharply, mainly as a result of deleveraging and strict credit allocation decisions of foreign banks present in the country. Funding reductions by foreign banks have accelerated in Hungary beyond the pace seen in peer countries.
At the same time credit demand has remained robust, especially in the export sector, which has remained buoyant despite the weak overall outlook in the Hungarian economy.
In this context, Exim plays a strategic role within the government’s economic plan, as it focuses on Hungary’s export trade—following the sharp drop in domestic consumption and investment— while compensating for the severe decline in credit supply.
In addition, Exim gives support to Hungarian commercial banks in order to reach small and medium enterprises through their distribution networks. This additional funding increases the stability of the Hungarian banking sector and strengthens its liquidity position.
This project will stimulate continued growth in Hungary’s export sector, generating associated employment and economic activity. As the country’s exporters are looking increasingly eastward to non-OECD countries, this will also support South-South trade and linkages.
The project is consistent with the World Bank Group's Europe and Central Asia Strategy that is focused on developing a new growth model for the region, particularly through increasing competitiveness to achieve faster growth.
[i] The guarantee was cancelled on May 13, 2019.
