Hungary yesterday became the first European Union country to finalise an emergency rescue by securing $25 billion (£15.6 billion) from the International Monetary Fund, the EU and the World Bank.

The agreement amounts to the biggest international deal for an emerging economy since the start of the crisis and is the first for an EU member. The IMF has already approved a $2.1 billion programme for Iceland and $16.5 billion for Ukraine.

The IMF in Washington said that it had reached an agreement to provide Hungary with a $15.7 billion loan. The EU was prepared to put in $8.1 billion and the World Bank $1.3 billion. The loan will be disbursed over 17 months.

Dominique Strauss-Kahn, the managing director of the IMF, said: “The Hungarian authorities have developed a comprehensive policy package that will bolster the economy’s near-term stability and improve its long-term growth potential.

“At the same time, it is designed to restore investor confidence and alleviate the stress experienced in recent weeks in the Hungarian financial markets,” he added.

The World Bank has also said that it is working with the country on longer-term structural problems.

Hungary’s economy has suffered because its banking system was heavily exposed to foreign financing at a time when investors were pulling back from developing economies. Its currency, the forint, which has lost almost 20 per cent of its value in the past month, firmed on news of the bailout and shares recovered on the Budapest stock exchange.

Analysts said that while the rescue package would prevent an immediate financial meltdown, it may not be enough to stabilise the currency in the medium to long term. Almost 90 per cent of recent personal and company debt is denominated in foreign currency and 20 per cent of gross external debt including government liabilities, a total of €20 billion, matures in the next 12 months.

Ferenc Gyurcsany, Hungary’s Prime Minister, gave warning that the country was likely to slide into recession next year and said that it must prepare for drastic public spending cuts.

The IMF yesterday approved a short-term lending programme that will provide quick loans for well-run emerging market economies.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts