Hungary is seeking backup from the International Monetary Fund and the European Union to reassure investors it has financing even if it gets cut off from debt markets later this year. The country's currency, the forint, sank to a record low against the euro a month ago, and its government bond yields rose above 11 percent on concerns that amid the euro zone crisis it may not be able to finance central Europe's highest debt burden compared to its economic output.

Varga reiterated that the government expected to reach a deal soon on a credit line that it could tap if the European debt crisis deepened further.

"A quick agreement is in the interest of both parties, therefore a deal could be outlined in one or two months," he said in an interview in the daily Magyar Hírlap.

"The amount of the safety net could be somewhere between 15 and 20 billion euros," he added.

Hungary's government unnerved investors repeatedly in 2010 and 2011 with unorthodox economic policy steps. It has also upset the European Commission with a range of legislation including a central bank bill that the Commission said curbed the bank's independence.

The country's markets have partially recovered due to pledges by the government to settle these issues and set up the international credit line.

"The planned financial backstop will allow the forint exchange rate to stabilize and government bond yields to drop, and it could lead to savings worth tens of billions forints in the budget," chief of staff, Mihály Varga said on Saturday.

The EU has threatened to cut vital 'cohesion funds' it disburses to Hungary unless the country takes measures to prove that it can reduce its deficit to a sustainable level.

But a slowdown in the economy makes further budget cuts difficult. The government expects 0.5 percent growth for the year and the IMF 0.3 percent, while the European Bank for Reconstruction and Development projects a 1.5 percent contraction.

"In a hectic global environment it is more difficult to increase the pace of growth in the Hungarian economy to a sustainable course," Varga said. "An upswing could start when we get to the second half of 2012."

Source: reuters.com