Hungary lowers 2022 budget deficit target to under 5.0% of GDP - FinMin

Financing need intact

Hungary’s net financing need is 3,153 billion forints, Mihály Varga told a press conference today. This means no change has been made to this goal.

The total net funding requirement of the central budget for 2022 is HUF 3,153 billion that is going to be financed by a net government securities issuance of HUF 2,663 billion and the partial utilization of liquidity reserves.

Out of the net issuance HGB’s will contribute to financing by HUF 1,000 billion, while the net increase of retail securities owned by households will amount to HUF 1,000 billion as well. In addition, the net foreign currency issuance will finance the central budget deficit in an amount of HUF 406 billion, while the net issuance of discount T-bills will amount to HUF 258 billion.

Budget deficit target slashed

By rescheduling certain investments, we have increased the financial reserves of this year's budget, while reducing debt, said Varga. Supportive fiscal policy must be maintained, but not with the same momentum as before, with less need for investment. We expect a further decline in the deficit and economic growth of around 5% in 2022 after 6.4 to 6.5% this year.

which allow the government's commitment to lower the deficit, with the 5.9% deficit target being further reduced to 4.94%

, he added.

The government of Prime Minister Viktor Orbán, who will be facing a competitive election in the spring fo 2022, has gone on a spending spree, giving families hefty tax rebates, raising pensions and cutting taxes on employment by HUF 750 billion.

However, a week ago Orbán unexpectedly announced putting off a planned purchase of Budapest's international airport to after the election, and the government called off investments and spending worth HUF 350 billion, after the November monthly deficit alone swelled above HUF 1 trillion.

This year the deficit is expected at 7.5% of GDP, while Hungary will also post a current account deficit according to the central bank's projections.

The reduction of the deficit target would already be justified even if the government did not spend its revenues, said Varga. The rationale for reducing the deficit is that the economy will also grow above 6% in the fourth quarter, the Hungarian economy has rebounded, and therefore, like monetary policy, fiscal policy can start to ease.

So some of the revenues will not be spent, and there will be additional measures; we will review public spending as we do every year. But this will not affect the other announced measures on wages and pensions, stressed the minister.

Some expenditures will be shelved due to the coronavirus pandemic. Even in 2022, masks will be worn in many places in Europe and the world, so we can save HUF 30 billion on language training, for example, Varga replied to Portfolio’s question. Record employment does not justify implementing further programmes in this area.

The below 5% deficit target will be achievable with economic growth of around 5%,

Varga concluded.

The previous goal was that the stock of government securities held by households reaches HUF 11 trillion by 2023, but in all likelihood this objective will be achieved sooner, said Varga.

At least USD 2 billion FX bond to be switched

We wanted to keep the share of foreign currency debt between 10 and 20%, but due to the weakening of the forint we have failed, said Government Debt Management Agency (ÁKK) chief executive Zoltán Kurali, adding that the end-year projection is 20.4%.

The Government Debt Management Agency (ÁKK) announced Hungary's 2022 financing plan today, revealing a plan to switch at least USD 2 billion worth of foreign currency bonds expiring in 2023 and 2024 for longer dated FX bonds in the second half of next year.

The ÁKK’s Board of Directors approved “the widening of the FX debt ratio tolerance band from 10-20% to 10-25% to increase the optionality and room for manoeuvre of financing strategy, by taking into account the relative cost advantage of FX financing due to rising forint yields, while still aiming at a below 20% FX debt ratio ideally in the medium term,” the debt manager said today.

The ÁKK has reduced planned forint denominated bond sales at auctions substantially.

It also plans to issue (partly green) international foreign currency bond in Japanese Yen Samurai market in Q1 2022, and expects the FX debt ratio to remain stable in 2022.

New Green Bond

Next year the ÁKK wants to further improve the investor diversification in the HUF institutional market through disclosures and continued dialogue with domestic and international investors.

“Hungary’s Green Bond Program will extend to the issuance of a new, 10-year green HUF bond in 2022, offered both to domestic and foreign investors. A new Primary Dealership Framework is to be introduced in H2 2022,” it said.

Retail financing

The priority goal of public debt management continues to be the fulfilment of the 2023 goal of HUF 11,000 billion retail securities owned by households, doubling the end-2018 outstanding amount.

The 2022 Financing Plan includes a net HUF 1,000 billion issuance of retail government securities to households. AKK remains keen to foster the further digitalization of distribution channels and we will develop and present a new Retail Debt Strategy in 2022.

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