Hungary bids to boost forthcoming bond with early IMF repayment

By bne IntelliNews January 28, 2013

bne -

In a bid to boost confidence ahead of its planned return to the international debt markets, Hungary has repaid €607m of its outstanding loan to the International Monetary Fund early, the economy ministry announced on January 25.

The tranche was paid more than two weeks ahead of the scheduled date of February 12 to prevent possible volatility in Hungary's financial markets, the ministry said in a statement. Budapest used the proceeds from the recent sale of €1bn in domestic retail bonds to make the repayment, it added.

Antal Rogan, parliamentary leader of the ruling Fidesz party, hailed the move. "Only a country with stable public finances is capable repaying an IMF loan worth HUF180bn ahead of schedule," she said, according to Bloomberg.

After around a year of dancing the hokey cokey with the IMF over a new loan, only for those talks to break down over Budapest's "unorthodox" economic policy, Hungary is gearing up to issue its first international bond since May 2011. However, with that action putting the final nail in the coffin of a new deal with the international lender, it has lost an important anchor.

On top of that, the market is now nervously eyeing the announcement of who will take over as the next governor of the Magyar Nemzeti Bank. Controversial Economy Minister Gyorgy Matolcsy is thought to be a shoe-in to run an expansive monetary policy at the behest of the government, ignoring currency and inflation risk in a bid to drag the economy out of recession.

That worry has been putting pressure on the forint over the last month or so. Following the announcement, the forint sagged to its weakest against the euro since June 12. The currency has depreciated 2.7% since December 21, the day before Matolcsy said the next governor should "bravely use unorthodox tools" to help the economy recover, points out Bloomberg.

Analysts at Equilor suggest that while the effect on the currency appears counter-intuitive at first glance, it suggests the market believes Budapest intends to pay down this year the entire sum still outstanding to the Washington-based lender under its previous 2008 loan programme. "As the [economy] minister described the deal as a great success, we think that the whole €5.5bn loan is planned to be prepayed to the IMF this year. If this was put into practice via decreasing FX reserves of the central bank, state debt to GDP could decrease by 5 percentage points (to around 73%). This could be useful for the current government for the 2014 elections, while it could have negative impact on the forint as decreased FX reserves would increase the risk assessment of Hungary."

According to the schedule, Hungary is set to pay off another €3bn to the IMF this year, which is one of the major elements pushing the country back to the markets. The decision to finally ditch the prospect of a new IMF loan by returning to the international markets was clearly pushed by the record low yields that Hungary's Visegrad peers have been scoring.

That has seen Poland and Slovakia in particular rapidly issuing debt in the last few months in a bid to gather as much of their annual borrowing targets as possible before the party runs out of juice. Hungary will be wary that recent reports suggest that the cheap liquidity handed to Eurozone banks by the European Central Bank has now started winding in. Citi analysts say they expect to see excess liquidity at European banks drop by up to €250bn by the end of the first quarter as they begin to reduce their exposure to the ECB's long term refinancing operations.

Related Articles

UK demands for EU reform provoke fury in Visegrad

bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more

Erste claims Hungary is breaking peace deal with banks

bne IntelliNews - Hungary will breach its February agreement with Erste Group if it makes the planned reduction in the bank tax conditional on increased lending, the Austrian lender's CEO ... more

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.