Hungarian local governments face financial difficulty due mainly to their large holding of foreign-exchange bonds, business daily Napi Gazdaság said on Tuesday.
Whereas their Swiss-franc loans have hit the headlines due to the forint's record low against the franc, the real story is municipal debt denominated in bonds, 80% of which are in foreign currencies, the paper said, quoting head of the Hungarian local government association (MOSZ).
György Gémesi told the paper that the stock of bonds held by municipalities was worth 538.7 billion forints (€1.95 billion) in June, according to National Bank of Hungary data. The paper said 18 out of Hungary's 19 counties had issued bonds, which are mainly going towards financing day-to-day operations due to a funding gap.
He said the biggest problem was the lack of an agreement between the central government and municipalities on how to restructure Hungary's system of bloated and costly local governments, which perpetuated structural financial burdens.
Gémesi called for a year's moratorium for the repayment of the principal by certain municipal issuers, and that the state should assume some repayments if this does not cause a problem for the central budget. Otherwise, Gémesi wants the banking association to negotiate to find a solution on a case-by-case basis.