MNB: Hungaryʼs external balances improve, debt ratios fall on big debt repayments in Q3

MNB

MNB headquarters in Budapest (Image by Jessica Fejos)

Hungaryʼs net lending to the rest of the world rose to €9.8 billion to exceed 9% of GDP in the four quarters to Q3 as the current account surplus rose above 4% of GDP and the capital account surplus neared 5%, the MNB said in the summary of its fresh quarterly Balance of Payments Report released yesterday.

(Photo: Jessica Fejos)

With large loan repayments by banks and companies in Q3, external debt ratios dropped considerably, reducing the external vulnerability of the Hungarian economy, the MNB said.

Net lending substantially exceeded the levels observed in other countries in the region, the report noted.

The growth in net lending was attributable to several factors. The trade surplus was boosted by the improved terms of trade, in addition to the positive gap between export and import growth.

Additionally, the absorption of EU transfers in the four quarters rose to a new record of more than €7 bln. As a result, the transfer balance improved the external position to an unprecedented degree. The slight decrease in the deficit on income continued, due to declining debt ratios and yields resulting in lower interest expense and the adjustment of corporate profits.

Foreign direct investments by non-residents rose due to a rise in reinvested profits, and banks and businesses repaid large volumes of external debt in Q3, still related to the conversion of FX retail mortgages into forints.

The rise in the net external lending capacity reflected both the historically low – less than 1% of GDP – net financing requirement of the general government and financial savings of the private sector, the MNB report said.

Net external debt decreased €3.1 bln to €29.2 bln or 27.5% of GDP, excluding intercompany loans.

The drop was mostly attributable to the above-mentioned loan repayments by the banks, but the tightening of the central bank regulations applicable to banks, which was announced in the middle of last year, also facilitated a decrease in external debt, according to the report.

Gross external debt fell €4.3 bln in Q3 to €83.5 bln, dropping to below 79% of GDP, which the report also attributed to the MNBʼs programs. Within the total, gross short-term external debt fell €2.1 bln to below €22 bln, thus maintaining Hungaryʼs favorable reserve adequacy. The MNBʼs international reserves fell €2.6 bln in the quarter, to €32.1 bln.

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