September 19, 2018 / 6:42 PM / 10 months ago

Payment of EU funds to Hungary could be delayed: Commission source

BUDAPEST (Reuters) - A dispute between Hungary and the European Commission about some EU-funded projects may not be settled this year which could delay payments from the EU, a Commission source said on Wednesday.

A delay in reimbursements of billions of euros has already increased Hungary’s cash-flow budget deficit and a row over payments could worsen relations with the EU that has threatened to impose sanctions on a country it accuses of flouting EU rules on democracy, civil rights and corruption.

The Commission source said that the Hungarian state was making “considerable advance payments” before recipients have issued bills for the projects.

“As far as we know the Hungarian side did not present yet the bills (to the EU) to be reimbursed, and there is an ongoing discussion on irregularities. It may not be settled this year.”

There are also questions over whether certain projects will be fully eligible for EU funding, the source added.

Hungary is one of the biggest recipients of EU development funds, which have helped boost investments and its economy.

The Finance Ministry and the government spokesman did not reply to emailed Reuters questions.

According Finance Ministry data, in the first eight months the cash-flow deficit widened to 1.646 trillion forints ($5.95 billion), exceeding the full-year target of 1.361 trillion in the 2018 budget.

By the end of August budget spending related to EU projects totalled 1.388 trillion forints, while reimbursements were only 183 billion forints, the Finance Ministry said in a statement earlier this month.

While spending linked to EU-funded projects boosts the cash-flow deficit and needs to be financed from debt issuance, it does not affect the deficit calculated based on EU standards.

Hungary targets a budget deficit of 2.4 percent of economic output, below the EU’s ceiling of 3 percent.

The government debt management agency AKK told Reuters in June that in the first five months it had already met its net financing issuance target for the full year.

It added that in the second half it would need to cover remaining debt expiries and any additional pre-financing of EU projects that boost the net financing need for 2018.

($1 = 276.79 forints)

Reporting by Gergely Szakacs; Editing by Robin Pomeroy

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