Only a country in a sound fiscal position can be capable of repaying 180 billion forint worth of IMF credit ahead of schedule, said Antal Rogán, head of the ruling Fidesz party’s parliamentary group on Friday. He told a press conference that the early repayment of the debt (by three weeks) is a message not only to the Hungarian electorate but also for the markets that the country has stable budget.
Rogán did not forget to emphasise that the previous administration between 2002 and 2010 was unable to meet its annual budget deficit targets and it was under the Socialist cabinets when the country’s fiscal situation and debt funding capacity were shaken. This forced the previous government to borrow EUR 8.8 bn from the IMF and EUR 5.5 bn from the European Union, he reminded.
Rogán also stressed the Orbán cabinet achieved even the deficit target set by its predecessor and has been keeping the budget gap below 3.0% of GDP since 2010.
As we have pointed out in our report on Economy Minister György Matolcsy’s announcement the repayment ahead of schedule was most likely motivated by communication factors, considering that it delivered no financial benefits and the state had the means to do the same in the past already, yet this was the first time it grabbed this opportunity. Yet the move does not automatically imply a stable budget. Three weeks from today Hungary would have had to pay in any case. Rogán most likely referred to analyses that point to serious tensions in the 2013 budget that may need to be remedied if the government wants to achieve its deficit goal.
Rogán also reminded that Budapest will need to repay 99% of its debt to the IMF by 30 March 2014 and the remaining part by the end of June and September. The repayment of the country’s debt to the EU was started in 2011 and the next due installments will become due in 2014 and 2016.
It is not worth attacking the forint
The politician said this move reaffirms that the country should be taken seriously and that it is not worth attacking its currency because it has the capacity to defend it. Another practical gain of the early repayment was that it reduced the country’s interest burden, he added.
This was the third remark by a government official over the past few weeks that was aimed at propping up the HUF. Mihály Varga, Hungary’s chief aid negotiator referred to the same means twice last week (first he said the forint should be in a range between 275 and 285 versus the euro then he stressed that due to the substantial foreign currency debts a considerable forint weakening would certainly exert an unfavourable impact on every player of the economy.
Earlier Economy Ministry state secretary Gyula Pleschinger said Hungary's government has no preferred forint exchange rate and while a weak forint benefits exporters, it is unwelcome for other players of the economy.HUF hammered
Hungary's forint eased to 298.60 versus the euro, a marginally weaker level from where the HUF started to appreciate on 14 January. This means the forint fell to a new 7-month low.
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