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AKK seeks to minimize influence of foreign issues on demand for forint debt

Hungary's Government Debt Management Agency (AKK) plans foreign issues of €4 billion this year, but it is important that these issues have as little influence on demand for forint-based government securities as possible, AKK deputy-CEO László András Borbély said in an interview published by business news portal portfolio.hu on Wednesday.

AKK does not plan more than €4 billion of foreign issues this year as it does not wish to raise the proportion of foreign currency-denominated state debt unnecessarily, Borbély said. The issues could take place any time during the year, depending on the market, he added.

Hungary may still draw on the €2.5 billion it called down, but has not used, from its IMF loan on deposit with the National Bank of Hungary, he noted.

Borbély gave a positive assessment of trends on the forint debt market: last year the amount of forint government securities held by foreign investors rose by HUF 377 billion and their stock rose a further HUF 202 billion by February 11. Improved investor sentiment has meant strong demand at auctions and falling government securities yields, he said.

Very positive expectations of long-term fiscal reforms to be announced soon by the government can be felt among market players, he said. These expectations are bolstered by the country's falling risk premium, he added.

AKK must finance the government's cashflow-based net balance, which continues to be a deficit approaching 3% of GDP. Its financing plan would change only if more than the planned HUF 530 billion in assets transferred from private pension funds is sold by the Pension Reform and Debt Reduction Fund, Borbély said.

AKK estimates HUF 1,200 billion-1,300 billion of government securities will be transferred from the pension funds, but these will be withdrawn at nominal value, reducing Hungary's state debt by HUF 1,100 billion-1,200 billion, he said.

Hungarian private pension fund members had until the end of January to opt out of a move, together with their pension savings, back to the state pension pillar.