The Hungarian debt The Hungarian debt management during the EU management during the EU

enlargement processenlargement processAndrás RézAndrás Réz

General General ManagManagererÁKK Rt.ÁKK Rt.

Inflation

Budget deficit

Debt/GDP

Convergence of long-term rates

Market development

Market harmonisation

Economic and Financial CEconomic and Financial Convergenceonvergence

InflationInflation

Hungary: Headline Inflation

100

102

104

106

108

110

112

jan.99 júl.99 jan.00 júl.00 jan.01 júl.01 jan.02 júl.02

%

Budget Deficit as Percentage of GDPBudget Deficit as Percentage of GDP

4,7%

3,7%

3,1% 3,0%

4,5%

5,7%

0%

1%

2%

3%

4%

5%

6%

7%

1998 1999 2000 2001 2002e 2003f

The 2002 figure excludes one-off items related to the introduction of the ESA95

DebtDebt level below 60% and level below 60% and the share of marketable debt increasedthe share of marketable debt increased

Public Debt/GDP

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Marketable HUF Debt Non-marketable HUF Debt Foreign Currency Debt

Maastricht criterion

Convergence of Long-term RatesConvergence of Long-term Rates

10 year HGB spread versus BUND

0

100

200

300

400

500

600

70019

99.0

1.20

1999

.04.

20

1999

.07.

20

1999

.10.

20

2000

.01.

20

2000

.04.

20

2000

.07.

20

2000

.10.

20

2001

.01.

20

2001

.04.

20

2001

.07.

20

2001

.10.

20

2002

.01.

20

2002

.04.

20

2002

.07.

20

2002

.10.

20

bps

Convergence process steady until 2002

Large FX and debt market fluctuations in 2003 – short and 10y spreads increased

Macroeconomic figures are not good

Government economic policy targets meeting maastricht criteria and early EMU membership

Economic and Financial Convergence II.

The real change comes with EMU-membership

Market harmonisation

Market development

Main goal:

Creation of a competitive, efficient and

EMU- compatible government bond market

EU and EMU-Convergence

Price quotation

Settlement circle

Coupon payment frequency

Yield calculation

Business days (TARGET) (in EMU)

Redenomination (in EMU)

Market Harmonisation: Conventions

Auctions (Rules and Frequency)

Product innovation

Secondary market

Primary dealers

Foreign investors

Market Development

General experience in EMU:

•with the declining gross borrowing requirements (deficit and maturities) less bond auctions and larger amounts

•more active use of buy-backs and T-bills

Hungary:

•Borrowing need still high

•154 auctions in 2002, reverse auctions (25)

•No. of auction was decreased in 2003, but gradually.

Auctions

3, 6 and 12 month T-Bills

3, 5, 10 and 15 year bonds

Less bond series (4 new bond series in 2003)

Larger sizes of the individual bond series

2001<EUR 1 bn

2002= EUR 1 bn

2003> EUR 1.5 bn

Increasing liquidity

Product Innovation

Primary dealers (13 in 2002)

Increasing role of reverse auctions

Securities lending (from 2004)

Repo facility (from 2004) and more active liquidity management

Electronic trading system

Secondary Market

Foreign holdings equal to HUF1800 billion

An increase of HUF 730 billion in 2002

5% T-Bills – 95% Bonds

Approximately 50% of the marketable bonds

Average maturity 3.5 years

Foreign investors

25% of total debt is in foreign currencies

Main focus on benchmark bond issues in the single European market

A medium term aim to develop the European market for Hungarian debt in euro

1-2 benchmark bonds of min. 1 bn euro

New EuroMTS platform – more transparent secondary market

Foreign currency debt

Public debt : HUF 9224 billion

Approximately 54% of GDP

Domestic debt 75%, foreign debt 25%

Loans 19%, bonds 81%

Average maturity: 2.33 years (HUF marketable)

Duration: 1.95 years (HUF marketable)

The Public Debt PortfolioThe Public Debt Portfolio

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