The State of Hungary has around EUR 3.5bn in foreign-currency deposits held in the National Bank of Hungary (NBH); this is the amount it could use to pay off debt expiring in the coming years, the NBH press department told MTI.
The NBH’s international reserves reached a new historic peak at EUR 35.3bn at the end of August, rising EUR 428m in a month, figures released by the bank on Tuesday morning revealed.
The state held a total of HUF 1,550bn in deposits with the NBH at the end of July, including EUR 3.5bn in foreign-exchange deposits, worth HUF 974bn. The foreign-exchange deposits could have been higher, at EUR 5.1bn, had an EUR 1.6bn installment, due under Hungary’s 2008 November standby agreement with the IMF in June, been drawn down, the NBH noted.
The EUR 12.8bn drawdowns the state of Hungary made from the combined EUR 20bn IMF-EU-World Bank loan facility raised the level of international reserves. The government can, however, use from the reserves only the equivalent of its NBH deposits to renew/pay off debt, the press department said, noting EU legislation prohibiting the central bank financing of/lending to the government.
The state converted the bulk of the called-down IMF and EU loans into forints with the NBH and spent the forints it received to pay off expiring debt and finance current spending above revenues — the deficit — at a time when it could only limitedly finance itself from the market. The NBH international reserves would still be around EUR 17bn-18bn, near their level prior the standby agreement if the state had converted the IMF-EU loans into forints on the market.
Therefore it is wrong to believe that the almost EUR 13bn the government has called down of its IMF-EU-World Bank standby facility could be used to pay off debt in the future, the NBH said.
If the state needed more than the EUR 3.5bn deposited to pay off foreign currency debt, the Government Debt Management Agency (AKK) should finance part of the repayment through issue of either forint- or foreign-currency-denominated government securities. If the AKK issues forint bonds, and converts these forints into foreign currency with the NBH, the conversion will reduce the NBH international reserves, the NBH said. The other option – issuing in foreign currency to pay off foreign currency debt – would not alter the reserves.
Foreign-currency-denominated bond expiries will total around EUR 3.3bn in the next two years, and Hungary also has to start paying off the IMF-EU loans at the end of 2011, figures from AKK and the former Finance Ministry’s website show. The first repayment, of EUR 2bn, is due to the EU in Q4 2011, and EUR 3.3bn has to be repaid to the IMF in 2012.