Hungary four-quarter c/a surplus exceeds €3.5 bln

The surplus, equivalent to 3.6% of GDP is "extremely high by regional standards", the central bank said. It attributed the net lending to the higher trade surplus and balance of transfers from the European Union.

Absorption of EU funds came to about €5.6 bln during the four-quarter period, the report shows. The MNB noted that the weaker forint exchange rate at the beginning of the year did not affect the value of EU funds denominated in forints because applications for grant money and payouts are both denominated in forints, but it added that a weaker forint "may have a tangible impact" on the size of HUF-denominated EU transfers in the long run.

The MNB said the decline in the four-quarter income balance was supported by lower interest paid on outstanding foreign loans.

Hungary's external debt continued to decline, reflecting a sharp reduction of the general government's net external debt mainly as a result of the increase in foreign exchange reserves owing to the inflow of EU transfers, according to the report.

The MNB pointed out a change in trend as the external debt of the banking sector increased and said a possible cause could be a shift in households' focus from deposits to government securities and investment fund units.

Net external debt as a proportion of GDP fell under 35% at the beginning of 2014, the report said. The net outflow of debt liabilities and the growth in nominal GDP were partly offset by the depreciation of the forint, which, together with the issue of FX bonds to finance debt maturing later, kept gross external debt a little over 90% of GDP, it added.

Short-term external debt, based on residual maturity, stood around €28 bln, the MNB said. "In other words, despite a considerable net lending position, Hungary's gross external borrowing remains relatively high," it added.