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Hungary 2011 budget bill reaffirms plan to cover net financing needs with forint issues from market

The government plans to meet the general government's 2011 financing requirement from the market, and net issuance will focus on forint issues, mainly bonds, the explanation attached to the 2011 budget bill submitted to Parliament on Saturday shows. Foreign market issues are planned at €4 billion, in line with financing plans announced in September.

The aim is to preserve the stability of the forint market, improve market liquidity and reinstate full market financing, the bill states.

This year, €1.4 billion or about 40% of the net government financing requirement was to be met from the disbursed but unused tranches of Hungary's autumn 2008 IMF-EU standby arrangement.

Next year's market foreign exchange expiries – including €2 billion in foreign bond expiries and €2 billion due to the European Union in the first installment payable on the IMF-led loan – will be refinanced through foreign market issues of €4 billion in order to keep the country's international reserves at appropriate levels and support investor confidence.

While net foreign market issuance will be zero, Hungary is expected to borrow €800 million (HUF 224 billion) from foreign development institutions. Depending on the market, these loans could be drawn in forints or in foreign currency, AKK said earlier.

The remainder of the net financing need will be met through forint issues, mainly bonds, although the role of discount T-bills in financing will grow slightly. Direct retail sales of government securities will stagnate according to the bill.

Including a projected HUF 110 billion deficit of local governments, the budget bill targets a cash flow-based general government deficit of HUF 799 billion for 2011.

The bill targets next year's gross general government interest rate expenditure at HUF 1,082 billion, down from a respective HUF 1,257.7 billion target this year. (MTI-Econews)