External balance improved in 2018, says MNB

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Hungary maintained its current account surplus, although it narrowed to 0.5% of GDP on a shrinking trade surplus, the MNB said in the report. It noted that the surplus in the trade of goods declined mainly due to a rise in import-intensive investments, and partly because of expanding consumption and higher oil prices, while the services surplus remained high.

The current account was also supported by a decrease in the deficit of the income balance, mainly related to interest paid abroad, the central bank added.

Hungaryʼs net financing capacity reached 2.2% of GDP in 2018, helped by absorption of European Union funding. 

The countryʼs net external debt ratio continued to fall, reaching a historical low of 8% at yearʼs end. The decline in the governmentʼs net external debt was supported by an increase in FX reserves connected to EU transfers, mitigated by a modest rise in non-residentsʼ holdings of government securities.

The gross external debt ratio dropped to 57% of GDP. Short-term external debt fell to EUR 17 bln at yearʼs end, while international reserves rose over EUR 27 bln.

Net FDI inflows amounted to EUR 3.7 bln, helped by more than EUR 6 bln in reinvested profit. Foreign-owned companiesʼ profits reached EUR 9.3 bln last year. 

The MNB noted that Hungaryʼs net financing capacity relative to GDP was the highest in the region last year. Hungary recorded the fastest investment growth among its neighbors, and investments relative to GDP were also the highest, it added.

MNB department head Péter Koroknai told reporters on Thursday that Hungaryʼs net external debt could fall to 0% by 2021. He added that the countryʼs net financing capacity could remain around 2-2.5% in the coming years.

EU transfers boost intʼl reserves

European Union transfers accounted for EUR 3.2 bln of the overall EUR 3.7 bln increase in the central bankʼs international reserves in the fourth quarter of last year, the MNB also said in its report on the balance of payments.

Payments of around EUR 600 million related to the MNBʼs derivative transactions and an almost EUR 100 mln increase in FX deposits of Hungarian banks also raised the level of reserves. 

The revaluation of other currencies appreciating against the euro and the revaluation of the euro-denominated price of gold boosted reserves by EUR 350 mln.

Net foreign currency financing of the Government Debt Management Agency (ÁKK) raised the reserves by around EUR 110 mln as the combined effect of issues of a EUR 1 bln eurobond, which was used to buy back EUR 900 mln of bonds exchangeable for shares of Hungarian drugmaker Richter, and a RMB 2 bln (EUR 260 mln) panda bond.

The reserves were reduced by the expiry of more than EUR 100 mln of residency bonds and by the redemption of EUR 100 mln of eurobonds.

Retail sales of Premium Euro Hungarian Government Securities (P€MÁPs) partly offset the foreign currency allocated to pay FX loans, according to the report. Other FX expenditures of the ÁKK, as well as the State Treasury, lowered the level of reserves by almost EUR 700 mln.

The MNBʼs international reserves stood at EUR 27.4 bln at the end of 2018.