BREAKING NEWS: Hungary to issue more foreign currency bonds!

We are aiming to diversify our foreign currency financing, as well. Depending on the current market situation, we will decide when and in what form we will enter the market, said Mihaly Hoffmann, in response to questions about whether to issue foreign currency bonds or borrow.

There are three reasons for the increase in the cash deficit:

• There is a lack of EU Recovery Fund resources.
• A worse-than-expected macro environment.
• Government measures that have already been announced, such as the extension of the personal income tax exemption to mothers.

Together, these justify the HUF 651 billion increase. As regards RRF funds, the government expects that half of the originally planned HUF 630 billion will be received.

Our accrual-based deficit target has already been raised to 4.1% and we have communicated this. The shortfall of RRF funds is not included in the accrual deficit, Kornél Kisgergely said in response to a question from Portfolio.

Mothers will be the first to receive the PIT-exempt infant care allowance (CSED) and childcare fee (GYED) in August 2025, costing the budget HUF 10 billion. Mothers with three children will receive their first PIT-exempted wage in November 2025, at a cost of HUF 50 billion for the budget. The 2026 budget will also be affected by the PIT exemption for mothers: (i) PIT-exemption for mothers of three children - HUF 200 bn, (ii) first PIT-exempt salary for mothers of two (Feb26) - HUF 120 bn, (iii) first PIT-exempt salary for mothers under 30 years of age with one child (Feb26) - HUF 10 bn.

Issuance in the institutional forint market will continue as before, with the auction calendar remaining unchanged, said the head of the debt manager.

Due to the favourable pro-rata figure, the forint-based institutional issuance goal will be reduced from HUF 2,370 billion to HUF 2,026 billion, while the foreign exchange issuance plan will increase to the HUF 1,685 billion mentioned above, said Mihály Hoffmann. With the extra foreign currency issuance, we will build up a liquidity buffer, which will be gradually reduced in the second half of the year. If market conditions permit, we will adjust this issuance level through forint and foreign currency repurchases by the end of the year, stressed the CEO. The retail market issuance plan remains unchanged at a net HUF 915 billion.

The cash deficit and net financing needs have increased by HUF 651 billion, which is not unusual in recent years.

with this net issuance will go up to 5.3% [of GDP] from the originally planned 4.7%.

In the first five months of the year, we have seen strong pro-rata numbers in all sub-markets. Net HUF institutional funding stands at 92%, foreign currency funding has reached 127%, and retail funding is at 42%, said Hoffmann.

The ÁKK's aim is to create a debt structure that is as diverse as possible. The debt manager is essentially based on three pillars: the domestic institutional market, foreign currency financing, and the retail market, according to the CEO. These proportions vary over time, with the institutional market currently accounting for around 50%, the foreign exchange market for around 30%, and the retail market for around 20%.

The cash deficit is expected to reach HUF 4,774 billion in 2025, so we have updated the financing plan accordingly, said Mihály Hoffmann, CEO of the ÁKK.

A revision of the 2.5% GDP growth forecast is currently underway. However, even a significantly weaker figure would not have a significant impact on our deficit trajectory, since the underperformance is primarily due to underinvestment and net exports, neither of which affects tax revenues, the state secretary said.

The primary budget balance, net of interest, was already balanced in 2024. After this year's minimum deficit of 0.2%, the government expects to return to balance by 2026. This puts Hungary in a strong position by international standards, according to Kornél Kisgergely, state secretary in charge of public finances.

Hungary is set to issue HUF 1,685 billion of foreign currency bonds in 2025, up from the original net figure of HUF 838 billion, the parties announced at a press conference today. In other words, the ÁKK has drawn up a new financing plan, which includes an

additional gross foreign currency issuance of 3.2 billion euros and a net issuance of 2.2 billion euros.

This means that they expect to buy back the foreign currency bonds at the end of the year. However, even with this, the FX ratio will still exceed 30%. The current plans are for the ratio to reach 30.2% by the end of December and then reduce only slightly to 30.1% by 2026.