Hungary plans lower foreign borrowing in the coming years after a surge in 2004 as a further substantial rise in foreign debt would be risky, the chief executive of the Government Debt Management Agency (AKK) said on Wednesday. Ferenc Szarvas told the news radio channel Info that the government retained a long-term financing strategy approved in 2001, according to which it would finance expiring foreign debt from new foreign debt issuing and everything else in forints.
"We want to use this principle in the long-term," he said. "However, in a given year the Finance Minister can decide on a change due to economic policy considerations."
According to the strategy the country would need international bond issuings worth one billion euros this year, but the government decided earlier to tap foreign markets for three billion euros in 2004.
It sold a 1.0 billion euro 10-year bond in January and plans a 50 billion yen five-year samurai bond and a benchmark sterling-denominated bond in the near future.
Hungary's foreign currency debt accounts for some 25 percent of total state debt and a further substantial rise before planned future entry to the euro zone would be already risky, Szarvas said.
"Foreign investors would possibly think then that this is risky, increasing the interest rate at which they are ready to lend, and this could easily trigger a currency (forint) depreciation," he said.
Szarvas said the government decided to boost foreign issues this year after turbulence in the forint market late last year. The decision could help companies to get loans more easily in the domestic market and help Hungary's high interest rates fall.
"We share analysts' expectations that these very high interest rate levels will decline during the year," he added.
The central bank (NBH) raised its base rate by six percentage points to 12.5 percent amid last year's market upsets and cut it by altogether 50 basis points only recently.
Szarvas said the state debt to GDP (gross domestic product) ratio was below 60 percent and could top that threshold only if the government fails to meet its deficit target or GDP growth is well below three percent expected for this year.
Keeping that ratio below 60 percent is a condition of joining the euro zone. Other key conditions are reducing the budget deficit to below three percent of GDP -- from 5.9 percent in Hungary last year -- and keeping inflation under control.
Source: Reuters
22.04.2004