SNAP ANALYSIS-IMF and EU agree Hungary rescue-but will it work?

BUDAPEST (Reuters) - The IMF, the EU and World Bank agreed to a $25.1 billion (15.66 billion pound) economic rescue package for Hungary which exceeded expectations and is seen boosting investor confidence in the country's currency and markets.

Hungary turned to the IMF for help in order to shore up its forint currency and markets and shield the economy from the global financial crisis.

The package, also taking into account Hungary's FX reserves of about 17 billion euros (13.5 billion pounds), is more than sufficient to cover Hungary's short-term financing need of around 32 billion euros in the next 12 months, including a current account deficit of about 5.6 billion euros expected for 2009.

The IMF help comes with conditions. It has forced the government to make additional painful spending cuts, including a reduction in social spending and public sector wages, which had been regarded as taboo so far. As a result, Hungary's budget deficit is expected to fall to 2.6 percent of gross domestic product next year, much narrower than a projected 3.4 percent this year.

WHAT DO WE KNOW ABOUT THE DEAL?

* An IMF staff mission and Hungary have reached agreement on an economic programme supported by an 12.5 billion euro loan under a 17-month Stand-By Arrangement.

* The package could go to the IMF Executive Board for approval in early November.

* The EU stands ready to provide a loan of 6.5 billion euros, and the World Bank has agreed to provide 1.0 billion euros.

* Core measures under the programme are designed to improve fiscal sustainability and strengthen the Hungarian financial sector. The package includes measures to maintain adequate domestic and foreign currency liquidity, as well as strong levels of capital, for the banking system.