Hungary secured a 20 billion-euro ($25.5 billion) loan from the IMF, the EU and the World Bank to shore up its economy that was ravaged in the credit crisis and is headed for a recession next year, Bloomberg reported.

The International Monetary Fund will lend 12.5 billion euros, the European Union will provide 6.5 billion euros, and the World Bank will add 1 billion euros for Hungary, the organizations said in statements yesterday.

Hungarian assets were battered as foreign-currency borrowing by local companies and consumers, along with slower growth, a wider budget deficit and higher government debt than elsewhere in east Europe, raised concern that the country may have difficulties in securing funding.

``The overall package is impressive both in terms of its size and in terms of the institutions providing funding,`` Martin Blum, a Vienna-based economist at UniCredit SpA, said in an e-mail. ``This is close to the overkill scenario.``

The forint rose to 257.05 per euro at 9:1 a.m. in Budapest, near a two-week high.

Emerging economies are turning to the IMF as investors, stung by losses in developed countries caused by the global financial crisis, sell riskier developing-market stocks, bonds and currencies. Ukraine and Iceland have received IMF financing, while Pakistan and Belarus have also asked for loans, though Hungary`s is the biggest rescue package so far.

Restoring Confidence

The IMF is providing a 17-month stand-by agreement to Hungary, which will be approved by the Fund`s executive board next month. A stand-by agreement is a line of credit that doesn`t necessarily need to be used.

``It is designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets,`` IMF Managing Director Dominique Strauss-Kahn said in a statement in Washington yesterday.

Western Europe is on the brink of a recession, exacerbating problems for neighboring emerging economies, which were scorched by investors dumping riskier assets in a flight to safety. Hungary was expecting GDP growth of 3 percent in 2009 when it first drew up next year`s budget.

Markets were hit by the global financial crisis two years after Prime Minister Ferenc Gyurcsany pushed through tax increases and cuts in public sector jobs and household energy price subsidies to narrow the widest budget deficit in the European Union.

`Recession Reality`

Gyurcsany said in Budapest yesterday that the government was preparing for a ``recession reality`` and expects gross domestic product will shrink by 1 percent next year. The last time the economy contracted was in 1993.

The currency fell more than 20 percent in the past three months, forcing the central bank to raise the benchmark interest rate to 11.5 percent from 8.5 percent, the biggest increase in five years. The forint fell to a record low against the euro on Oct. 23.

The benchmark BUX index plummeted to more than a four-year low, while OTP Bank Nyrt., the nation`s largest lender, lost 53 percent of its value this month.

The government secured an emergency loan facility of 5 billion euros from the European Central Bank and the central bank started offering foreign-exchange swaps and buying back bonds to help revive interbank lending and debt trading.

As part of the package, Hungary will cut spending and move to reduce its reliance on external financing by cutting the budget deficit faster than earlier planned, Gyurcsany said yesterday.

Salary Freeze

The government is proposing freezing salaries and canceling bonuses for public workers and reducing pensions to cut the budget deficit to 2.6 percent of gross domestic product next year, rather than an earlier plan of 2.9 percent. Hungary estimates a gap of 3.4 percent this year.

``The budget deficit can even drop to around 2 percent of GDP considering the planned expenditure cuts and the conservative growth assumption,`` Budapest-based ING Groep NV analysts David Nemeth and Balazs Csonto said in an e-mail.

Gyurcsany has also postponed tax cuts for next year, aimed at boosting economic growth from a 14-year low of 1.1 percent last year, to ease the country`s financing pressure.

The government managed to trim the shortfall to 5 percent of gross domestic product last year from 9.2 percent in 2006.

The government and central bank have pledged to meet euro- adoption requirements for the deficit, inflation and national debt by next year. The nation doesn`t have a target for the switch, because deficit overruns forced it to scrap previous goals.