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The government has signed a loan of one billion Euros from Hungary, with the aim of paying off old debts and relaunching the economy. For the opposition, however, the money actually comes from China, and risks deepening Beijing's influence on the country
A billion Euros in loans from Hungary will be used in North Macedonia under a special law, which was adopted by parliament at the end of September 2024.
While the government announces an investment boom, the opposition argues that the country is only increasing its foreign debt and giving China more opportunities for interference.
After the loan was agreed upon by Prime Ministers Hristijan Mickoski and Viktor Orbán on the sidelines of the NATO Summit in Washington, in July 2024, before the signing of the agreement on October 8, the Parliament of North Macedonia passed a special loan law on September 17, 2024.
Money for development
The government and the opposition clashed over the law as well as over what the loan from Hungary will mean. The opposition accused the loan agreement of having huge political and economic consequences with an enormous increase in public debt.
The government believes that the procedure was transparent, the allocation of the loan was known in advance and that it will help the municipalities and the economy.
By January 2025, 500 million Euros had already been spent to fully repay the 2018 Eurobond loan. 250 millions were allocated for projects in about 80 municipalities across the country, and 250 will be provided by the Ministry of Finance to the state-owned Development Bank, from where they will end up in companies through commercial banks.
The government is borrowing money from the Hungarian Export-Import Bank, which on its website claims to be "the financial engine of the Hungarian economy which creates a path to success with its innovative financing options". The interest rate is fixed and amounts to 3.25% and the repayment period is 15 years, including a grace period of 3 years.
After the deal, Finance Minister Gordana Dimitrieska-Kochoska stated that borrowing from Hungary, instead of issuing a new Eurobond, ensured more favourable conditions and also saved on interest.
“The interest rate for this amount on the international market is around 6%”, said Dimitrieska-Kochoska.
A few months later, she claimed that there were no other cheaper options for the private sector.
The shadow of Beijing
The opposition SDSM expressed doubts that Chinese money was behind the Hungarian loan. They shared information from the Hungarian Center for Public Debt Management that their country had borrowed 1 billion Euros from three Chinese banks and that reputable world media were writing about it.
"This is another, official confirmation that the money for the Hungarian loan is actually Chinese money. So, in addition to corruption, Mickoski also wants to hide the origin of the money from China. In this way, Mickoski is holding the country hostage and under harmful political dependence on third countries, contrary to our strategic interests", SDSM reacted.
Macedonia's connection with Hungary is a sensitive topic because former Prime Minister Nikola Gruevski, convicted of misuse of state funds, has been in Hungary since 2018. Hungary granted him political asylum and is not extraditing him to serve his sentence.
Since the spring of 2024, Gruevski's party VMRO DPMNE has been in power, which in turn announced the potential entry of 4iG, a Hungarian telecommunications operator.
"The problem is that 4iG has a strategic partnership with Chinese Huawei, which is contrary to domestic legislation that requires the procurement of a modern 5G network exclusively from trusted suppliers, which do not include Chinese companies", says an article on the website Racin.mk
Part of the public views the loan positively. The Chamber of Commerce of Macedonia stated that the conditions are quite favourable, from a business perspective.
"This money can provide liquidity and survival for small and medium-sized enterprises, stimulate economic growth, increase competitiveness and create new jobs, which will contribute to stabilising the economy in times of crisis", says university professor Abdil Bausch for mkd.mk
However, Bausch points out that there are risks – an increase in public debt is likely, which could have long-term negative consequences for the country's budget.
China’s influence
In terms of financing with foreign loans and the connection with the public debt, North Macedonia is considered to be quite exposed and vulnerable to Chinese influence. In May 2024, the German Konrad Adenauer Foundation produced an analysis that shows North Macedonia's dependence on China in three areas: trade, investment and infrastructure loans.
The analysis states that the country had a relatively positive experience with the first loan and infrastructure project financed by China, the Kozjak hydroelectric power plant by China International Water and Electric Corporation (CWE) in the early 2000s.
The agreement for the construction of two highway sections with a total length of about 100 kilometres, concluded in 2013, has two directions.
While the Shtip-Miladinovci section was completed with only a slight delay and without major controversies, the construction of the Kicevo-Ohrid highway did not proceed smoothly and in accordance with the planned deadlines and amounts, raising serious questions related to the planning, preparation and implementation of the project.
The construction of the Kicevo-Ohrid highway, which began in May 2014, was originally scheduled to be completed in 2019 with an initial amount of 374 million Euros from the Export-Import Bank of China.
In 2018-2020, five annexes were signed with Sinohydro, a Chinese construction company, and an additional 180 million Euros were taken from the bank. In 2024, the price of the unfinished project rose to 600 million Euros, with active public speculation that the company would demand an additional 50 million Euros in “damages” and that it was preparing for international arbitration.