Economy minister: Brussels undermining Hungary’s debt reduction efforts

Budapest, December 17 (MTI) – Hungary’s efforts to reduce the public debt have been hindered by a protracted dispute with the European Union concerning the accounting of 600 billion forints (EUR 1.9bn) of EU payments, Economy Minister Mihaly Varga said on Thursday.

In the meantime, the government has had to fund projects using its own resources, Varga said in an interview to weekly Figyelo. It looks like Brussels is trying to undermine Hungary’s debt reduction efforts, he added.

The budget deficit is expected to be around 2.2 percent of GDP this year, below the target of 2.4 percent. But in the case of the public debt, “the situation is slightly different”, he added.

“For four years, we have always fulfilled the targets set by the law and will try to do the same this year,” Varga said.

The state is planning to renew in Chinese Renminbi part of the 5-5.5 billion euros FX debt expiring next year, Varga said. What is important is not the amount but the fact that new relations have been established that “could make the financing of state securities safer,” he added.

Also, Varga said real wages would have to rise by 2.5-4.5 percent to support domestic consumption.

In an interview published by Reuters on the same day, Varga said that he saw a good chance for MKB Bank and Budapest Bank to be privatised next year.

Talking about the euro-forint exchange rate Varga said forint levels around 308-310 per euro “would be better” and there is still a chance for the forint to firm in the remainder of the year.

Varga said there was a good chance this year for the state debt to decline from last year’s 76.2 percent of GDP. He said the government planned a further reduction in the budget deficit to 1.7 percent of GDP in 2017 and 1.6 percent in 2018, from less than 2.4 percent this year.

Varga said it was “very important” that Hungary should issue a renminbi-denominated bond next year under a deal signed with China in November. The upper limit of this issue could be 3 billion yuan and Hungary would decide later next year whether it would tap international markets in other currencies as well or refinance expiring debt from domestic issuance.

“We’ll see around the end of February how yields perform, whether debt agency AKK should continue to be active in the domestic market or go out again (to international markets)”, he told Reuters.

The minister noted that even with the privatisation of MKB and Budapest Bank the proportion of Hungarian ownership within the bank sector, currently close to 60 percent of the balance sheet total, should not decrease.

Photo: MTI