Economy 13 September 2012, 4:47pm

Hungary gov't financial reserves decrease in August

Portfolio

The rise of the Hungarian state’s financial reserves to a nine-month high in July proved only a temporary phenomenon, as the end-August figures published by the central bank (NBH) already show a HUF 410 billion decline that pushed the balance back to where it was at the end of June. The nearly HUF 2,700 billion worth of assets can still be considered an extremely high reserve level.

This is what the state has

The central bank’s monthly statistics, the assets data provided by the Pension Reform and Debt Reduction Fund (with a two-month delay) and the daily share price of the 21% stake held by the state in fuels group MOL allows us to calculate how much liquid assets the state has altogether.

Assuming that the private pension fund assets transferred to the state (HUF 655 bn) has not changed compared to the end-June number (there is no more up-to-date stats on that) then - according to Portfoio.hu’s calculations - the state’s financial reserves amounted to HUF 2,696 bn at the end of August. This is HUF 410 bn smaller than what we calculated with a similar method a month ago when the government’s deposits were at an unusually high level, and almost the same as at the end of June (HUF 2,707 bn).

Of the HUF 410 bn decline HUF 310 bn is attributable to a drop of the government’s HUF deposits at the NBH (to HUF 676 bn) and another HUF 100 bn was the fall of FX deposits (to HUF 972 bn).

The former was caused by a major redemption to the International Monetary Fund (IMF) to the tune of cc. HUF 180 bn and the maturity of a discount T-bill series of a similar volume.

At the end of September, another tranche of the IMF credit facility secured in late 2008 will become due, totalling nearly EUR 500 m (HUF 142 bn).

This is how the government will cope

Given that the government still has not inked a deal on a financial assistance programme with the IMF/EU it was unable to issue FX debt this year. In order to protect its FX deposits it pays the IMF tranches and maturing FX debt by asking foreign currency from the central bank (forint conversion) hence its forint deposits drop. But it can easily “fill up" the forint deposit tanks since it has had no problem with issuing forint-denominated government securities at local auctions even at relatively high average yields. On top of that the favourable global investor sentiment often helped the Government Debt Management Agency (ÁKK) allot more of the instruments than originally planned.Also the government gains substantial additional forint-denominated liquidity from successful bond sales to households. The sold stock rises HUF 40-50 bn every month and total HUF bond holding of households is already over HUF 770 bn.

Prime Minister Viktor Orbán said in his parliamentary address at the opening session on Monday that the stock will go up to HUF 1,000 bn. Subsequently this area is starting to bear an ever bigger importance in terms of debt financing.