By Gabriela Baczynska

BRUSSELS (Reuters) – The European Union’s executive is due to come up with a new assessment on Friday of the state of democracy in Hungary to help the bloc’s 26 other member states decide on whether to grant Budapest billions of euros worth of funds.

Trying to unlock access to the money, Hungary’s nationalist Prime Minister Viktor Orban is facing one of the greatest challenges of his 12-year rule as domestic inflation is seen climbing to 26% this month, the cost of state debt has shot up and the economy is expected to slow sharply next year.

At stake is 13.3 billion euros ($14.1 billion) that had been earmarked from the EU’s joint coffers for Hungary but blocked over worries around corruption and a lack of judicial independence in the country of around 10 million people.

The European Commission is due to communicate its position to the Czech Republic, current holder of the EU’s rotating chairmanship, in a letter later on Friday, two officials said.

Orban, in power since 2010, has had many bitter fights with the EU over issues including media restrictions and LGBT rights.

With Hungary highly reliant on Russian oil and gas, he has cultivated close ties with Moscow and repeatedly stalled EU sanctions against Russia over the war in Ukraine.

SEEKING DEAL

But with Hungary’s forint currency down 11% versus the euro this year, Orban has sought to strike a deal with the Commission to unlock funds seen as critical for his ailing economy.

The Commission had earlier recommended freezing 7.5 billion euros, or 65% of ‘cohesion funds’ assigned to Hungary from the EU budget until the end of 2027, citing corruption risks.

But the other member states – locked in a tug-of war with Hungary that also sabotaged an 18 billion euro loan to Ukraine and a proposal for a global minimum corporate tax – refused to endorse it and pushed the EU executive to take another look.

The Commission has also been withholding its approval of some 5.8 billion euros envisaged for Hungary from an EU fund set up to help member states recover from the COVID pandemic.

An end-of-year deadline to decide on both pots of money increases the pressure on both sides as they seek to wring concessions from each other. ($1 = 0.9463 euros)

(This story has been corrected to fix figure to billion not million in paragraphs 8 and 9)