Hungary: Government plans HUF 3,409bn of net debt issuance in 2023
Metodi Tzanov
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The government planned HUF 3,409bn of net debt issuance in 2023, according to a presentation on the website of the State Debt Management Agency (AKK). Net issuance was expected to cover the HUF 3,200bn cash budget deficit and add HUF 209bn to liquidity reserves. The greatest contribution to net issuance was expected to come from forex financing, followed by domestic wholesale bond issuance and retail securities. The financing plan was presented on a joint press conference by finance minister Mihaly Varga and AKK head Zoltan Kurali. The government will stick to its budget deficit reduction policy despite the economic slowdown and the disciplined fiscal policy has contributed to successfully securing the financing of the budget, Varga stated. The deficit target remains 3.5% of GDP next year while economic growth is expected to decelerate to 1.5%, he said. Further measures could be taken if necessary to achieve the deficit target and the debt reduction objective, he added.
The government expects EU funds to help the financing of the 2023 budget after the earlier agreement on the recovery and cohesion funds, Varga stated. He did not provide specific figures about the planned EU fund revenue and whether it has been fully incorporated in the budget financing plan for 2023 despite the risks for Hungary not to gain complete access to these funds. As we reported earlier, PM Gergely Gulyas had said that the government expects HUF 2,500bn of EU fund revenue next year, out of which HUF 1,000bn were subject to some conditionality. EU funds should start flowing already as of January and the they will also include the agricultural subsidies, Varga said.
Gross issuance will be HUF 11,479bn next year, excluding switch auctions. Retail security issuance will be the main source of financing for next year, followed by domestic wholesale bonds and forex issuance. Regarding forex financing, the government planned to sell forex bonds in H1 but also to continue the practice of buying back expiring dollar bonds before maturity, Varga said. In particular, the forex bond issuance was planned to include USD 4bn of USD-denominated bonds, part of which will be used to redeem USD 1bn of bonds maturing in 2023-2024. A benchmark-size EUR bond is also planned to be issued in H2. Other forex financing like project loans from IFIs or green private or conventional issues were possible as well, according to the AKK presentation. The AKK raised the maximum target share of the forex debt from 25% to 30% because of the forint depreciation and the significant forex issuance this year.
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The AKK will miss the objective of raising the stock of retail securities to HUF 11,000bn in 2023, Kurali admitted. The AKK has drafted a new strategy for retail issuance, which will be announced at a later stage. The AKK presentation suggested that it planned facilitating access to government bonds, optimising and restructuring the product portfolio of retail securities. In particular, the retail securities will be streamlined to three base products - the MAP Plus, the inflation-linked bonds and a fixed-rate bond to be rolled out after inflation starts to subside, Kurali said. There will be room for other specialised products as well, it added. The AKK will put a ceiling on the sales of retail securities per retail investor and will limit the share of retail securities to 20-25% of the total government debt.
The AKK's strategy for the wholesale domestic market in 2023 was to reduce average maturity because of the high yields. The average maturity will fall to 6 years next year compared to 9 years in 2022. The share of floating bonds will be also reduced, also because of the AKK's benchmark regarding the fixed to floating bond share. The switch auction programme will be restarted as of H2 in case yield normalise.