State debt is obstacle to growth, says rate-setter

MNB

The scale of Hungary's state debt stands in the way of putting the country on the path of sustainable economic growth, National Bank of Hungary deputy governor Júlia Király said at a conference organized by business news portal Portfolio.hu on Thursday.

"Hungary's current level of gross state debt and net external state debt is extraordinarily close to critical levels over which potential economic growth simply slows," Király said.

She explained that Hungary's gross state debt is at about 80% of GDP and its net external state debt reaches 50% of GDP, while countries that serve as models for growth have state debt levels of 20-30% of GDP.

Király said Hungary requires an economic turnaround if it wants to become capable of achieving its 1.5% annual GDP growth potential for a prolonged period.

She said Hungary needed a primary balance -- which excludes the cost of debt maintenance -- of 3.5-4% of GDP if the country's level of gross state debt was not to grow over 80% of GDP. She added that financing Hungary's current state debt at interest over 8% was impossible.

She said that only a 1-1.5% primary balance was realistic for Hungary to achieve, thus it was the task of economic policy to reduce the country's risk premium and bring financing costs under 8%.

Average yields at auctions of 3-,5- and 10-year bonds by the Government Debt Management Agency (AKK) on Thursday were between 8.32% and 8.60%.

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