Hungary intl reserves drop €430 mln to €35.5 bln in March

Hungary's international reserves stood at €35.467 billion at the end of March, dropping €430 million from a month earlier, preliminary data published by the National Bank of Hungary (MNB) on Friday show. The international reserves rose €1.586 billion from the end of December and were up €770 million from twelve months earlier.
    In March, the reserves were reduced by the redemption of a JPY 50 billion bond on March 18 and by repayments on an International Monetary Fund loan the country took out in the autumn of 2008: a SDR 158 million installment paid by the central bank on March 25 and a SDR 263 million installment paid by the government on March 29.
    The MNB announced on Thursday a plan to reduce the reserves by €3-4 billion, made possible by cutting the country's short-term external debt by HUF 1,000 billion, as part of the "Funding for Growth Scheme". Under the scheme, the MNB will provide interest-free refinancing to banks in order to boost cheap forint lending for SMEs. The short-term external debt – an important indicator for the necessary scale of international reserves – could be reduced as the government or other sectors repay government foreign exchange expiries with forints, MNB managing director Dániel Palotai said on Thursday. The possibilities must still be discussed by the government, the Government Debt Management Agency (ÁKK) and banks, he said, adding that there is no timeframe for the reduction of the reserves and short-term debt.
    ÁKK must still repay about €2.6 billion in foreign expiries this year, and the MNB must repay an additional €450 million on its IMF loan, Econews calculated. ÁKK has issued foreign bonds worth about €2.5 billion - a combined $3.25 billion of five- and ten-year bonds - and made about €2.4 billion of repayments so far this year. The MNB has repaid €150 million of its IMF loan this year. Government foreign expiries this year total about €5.1 billion, including €1.4 billion of maturing FX bonds and about €3.6 billion of repayments on the IMF loan. The total does not include the €600 million the MNB must repay on its part of the IMF loan.
    ÁKK officials said recently they plan to reduce the share of FX debt in total state debt only gradually, and will stick their policy of refinancing maturing FX debt with FX issues and forint debt, as well as the deficit, from forint issues. They added, however, that reduction in the proportion of FX debt will also depend on the MNB's policy regarding international reserves and the foreign exchange needs that implies.
    The MNB's international reserves dropped €3.9 billion last year, to €33.88 billion at the end of 2012, when ÁKK financed all foreign expiries from forints. ÁKK delayed a planned €4 billion FX issue until reaching an agreement with the IMF on financial assistance. Talks on the credit, which Hungary said was precautionary, were put on hold early in 2013. Repayments of Hungary's FX debt have been supported by subscriptions of the Premium Euro Bond (PEMAK), the country's first domestically issued FX bond, launched last November. ÁKK sold €309 million of PEMAK bonds last year, and sold €1.2 billion of PEMAK bond in the first three months of 2012.
    Hungary's reserves, at €34.4 billion at the end of 2012, were enough to cover five and a half months of imports and were 1.7 times more than Hungary's short-term external debt, National Economy Minister Mihály Varga recently said in a written response to a question by an opposition MP.