Hungarian c-bank sees lower dependency of domestic economy on foreign funding

By bne IntelliNews April 4, 2014

Hungary’s external balance has improved considerably in recent years and the dependence of the economy on foreign financing sources has diminished, the central bank said in the first edition of a report on developments in the country's external balance position.

Hungary’s net lending (net financial savings) has improved considerably due to surpluses on the current and capital accounts. Domestic absorption, which declined due to deteriorating income trends and limited borrowing options, improved the trade balance, while declining profitability rates in the corporate sector had an upward effect on the income balance, and the rising use of EU transfers improved the balance of transfers to a considerable degree.

Hungary has made substantial payments on its external debt in the years following the crisis, while at the same time foreign direct investment continued to flow into the economy.

According to the report, Hungary’s external indebtedness has also moderated as the net external debt has been gradually decreasing in recent years. In particular, the decrease in the net external debt of the state - the banking and the corporate sectors in Q4 2013 pushed the net external debt down to 35% of GDP, which is significantly lower than both pre-crisis levels and the all-time high of more than 60% registered in early 2009.

In terms of sector distribution, the increase in net lending has been contributed by the net savings of the household and corporate sectors, as well as by the tight spending control of the general government.

In regional comparison, the central bank concluded that despite the favourable trends, Hungary’s external indebtedness continues to exceed the regional average, which warrants the continued close monitoring of developments in the external balance

The bank said it has launched a new publication series with the aim of providing regular and comprehensive analyses of developments in the country’s external balance position, macroeconomic relationships and to identify factors critical in terms of the country’s vulnerability.

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