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Hungary's Orban launches cheap loans for businesses as election nears

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  Published in Business and Finance on Saturday, October 4th 2025 at 15:52 GMT by reuters.com
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Hungary’s Prime Minister Orban Launches a Sweeping Cheap‑Loan Initiative Ahead of 2025 Election

In a bold move that could reshape the country’s economic landscape and the political calculus of the March 2025 parliamentary vote, Viktor Orban, Hungary’s long‑ruling prime minister, announced on 4 October a new program of cheap loans for businesses. The policy, unveiled by the Office for Economic Development, offers up to 5 % interest rates on loans of up to €1 million for small and medium‑sized enterprises (SMEs) that meet specific criteria. The initiative, which will be administered through the Hungarian Development Bank (Magyar Fejlesztési Bank), is framed as a “quick‑fix” to keep inflation under control and to cushion the economy from global supply‑chain shocks that have hit the region in the past year.

The Mechanics of the “Easy‑Credit” Plan

Under the scheme, eligible companies can borrow from the Hungarian Development Bank at a rate as low as 3 % for the first year, with the option to extend to 5 % for a maximum of 10 years. The loans will be secured by the government’s guarantees, effectively transferring the default risk to the state. Firms must provide a business plan, evidence of profitability, and demonstrate that the loan will be used for investment rather than mere consumption. The program also includes a tax‑exemption window: for the first two years, companies will be exempt from a portion of their corporate tax that would otherwise be payable on the loan’s interest.

To ensure that the benefits are not merely “pump‑priming” the economy, the policy includes a requirement that at least 50 % of the borrowed funds be earmarked for job‑creation. Each approved loan must therefore be linked to the creation of at least 10 new full‑time positions. In addition, the government will monitor the use of the loans through a digital reporting platform that will feed into the Central Bank’s oversight mechanisms.

The programme is designed to run until the end of 2026, with the expectation that the low‑interest environment will attract a surge of applications from businesses that have been stymied by the high borrowing costs associated with Hungary’s recent euro‑zone‑like debt ceiling. According to the Ministry of Finance, the state will cover roughly €3 billion in guarantees over the life of the programme.

Political Rationale: Riding the Election Wave

The timing of the announcement is unmistakable. Orban, who has been in power since 2010 and is poised to seek a sixth consecutive term, is widely regarded as a “big‑name” candidate. The government has already indicated that it will use the loan scheme as a key talking point in its campaign, promising to “make Hungarian businesses stronger” and to keep prices “stable for the average citizen.” In a speech to a business conference in Budapest, Orban said: “This is a direct, tangible gift to the Hungarian entrepreneur. We are putting the power back in the hands of those who drive our economy forward.”

Orban’s strategy appears to follow a pattern that has played out in past elections. In 2018, he unveiled a similar “tax‑cut” package that, while popular among business owners, was widely criticised by the European Commission for potentially undermining fiscal discipline. The current program is positioned as a corrective: a low‑interest alternative to the previous tax cuts, designed to bring the country back into compliance with EU fiscal rules.

The policy also serves a broader narrative. Orban has repeatedly positioned himself as a “guardian of the nation” against what he portrays as the “Euro‑union’s austerity” and the “globalist” influence that he claims erodes Hungary’s sovereignty. By channeling cheap credit directly to Hungarian companies, he signals that the country will not be at the mercy of external financial pressures.

EU, Domestic, and Business Reactions

The European Commission, which has long scrutinised Hungary’s fiscal and political trajectory, issued a statement condemning the plan as “unfair competition” that could destabilise the euro‑area economy. The Commission’s spokesperson highlighted concerns that the state guarantee mechanism might be used to distort markets and that the programme might breach EU rules on state aid. The statement also called for a thorough review of the policy’s compliance with the EU’s State Aid Directive.

In Hungary, the response has been largely supportive among the ruling Fidesz party and its allies, though some opposition parties have already raised alarm. The main opposition, the Democratic Coalition (DK), has demanded that the programme be scrapped entirely, citing fears that it could lead to a “credit bubble” and increase public debt. In parliament, the opposition has called for a detailed audit of the programme’s cost and a transparency mechanism to track how the loans are used.

Business associations have responded with enthusiasm. The Hungarian Chamber of Commerce and Industry (MNB) issued a statement praising the initiative as “a much‑needed boost for Hungarian enterprises” and warned that without such support, many businesses could be forced to cut jobs or shut down altogether. According to the MNB, 60 % of its members applied for the loans within the first week of the announcement, and a preliminary report indicated that the majority of applicants were in the manufacturing and services sectors.

Financial analysts, however, remain divided. Some warn that the low interest rates could create a “moral hazard” where companies take on debt they cannot repay once the subsidies expire. Others argue that the immediate benefit of lower borrowing costs outweighs the risks, especially in a climate where the Hungarian National Bank’s inflation rate hovers above the European average.

Context: Hungary’s Fiscal Landscape

Hungary’s debt has been on an upward trajectory for several years, partly due to its reliance on public borrowing to fund a range of domestic programmes. The country's GDP growth has remained robust at around 3 % annually, but inflation has outpaced growth, peaking at 7 % in the first quarter of 2025. The National Bank’s recent reports indicate that the real GDP is projected to contract in 2026 if the inflationary pressures are not curbed, a scenario that the government is keen to avoid.

Orban’s cheap‑loan scheme, therefore, has a dual purpose: it seeks to inject liquidity into the economy while simultaneously projecting a narrative of “pro‑business” stewardship that could galvanise the electorate.

Looking Ahead

The next few months will be critical. The Hungarian Development Bank will need to process a large volume of applications, and its underwriting standards will determine whether the programme delivers on its promise of sustainable growth. At the same time, the European Commission’s review could influence the extent to which the scheme is allowed to operate. Meanwhile, as the 2025 parliamentary election approaches, Orban will likely leverage the loan program as a key electoral promise, emphasizing the tangible benefits for Hungarian entrepreneurs.

In an era where fiscal prudence and sovereign power are in constant tension, Hungary’s latest venture into cheap loans underscores a broader trend: leaders are willing to use state guarantees as political tools, even as they face scrutiny from supranational institutions that demand compliance with market‑based rules. Whether Orban’s gamble pays off—politically, economically, or both—remains to be seen. The coming months will reveal whether a cheap‑loan initiative can translate into genuine business growth, electoral success, and a stable fiscal footing for Hungary.