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Stronger forint supports fall in state debt

Hungary's state debt as a percentage of GDP could fall further this year, mainly because of the firming forint, Government Debt Management Agency (ÁKK) deputy-CEO László András Borbély said in an interview published in daily Magyar Hirlap on Tuesday.

Hungary's state debt fell from 81.5% of GDP at the end of 2010 to 80.6% in 2011 as debt increased at a slower rate than GDP growth, Borbély said. Debt fell even though the forint weakened against the euro, raising the amount of forex debt by HUF 1,163 billion to almost 43% of the total, he added.
The decline continued in the first quarter of 2012, dipping to 79%, supported by a HUF 129 billion fall in the absolute value of central government debt, which accounts for more than 90% of total state debt, he said. The fall was due in part to favourable financing conditions and the significant firming of the forint which reduced forex debt by HUF 521 billion, he added.
Central government debt fell a further HUF 334 billion by the end of June as the net effect of slightly increased net issues and the continued strengthening of the forint against the euro, which cut the forint value of the stock by HUF 749 billion in the first half.
Borbély said a campaign launched by ÁKK in January to boost retail purchases of government securities had raised the stock of papers held by households by more than 50% to HUF 718 billion by the end of July. This stock includes only securities designed for the general public, but households also hold about HUF 250-300 billion worth of other government securities. Including the latter securities, the stock is expected to reach HUF 1,000 billion soon, he added.
Borbély said that although about 40% - or more than HUF 4,500 billion - of the stock of Hungarian forint government securities was in the hands of foreign investors at the end of July, this does not cause a problem. Investors today are more experienced with regard to negative news that influences the mood on global markets, and the circle of investors who hold Hungarian government securities has changed, at least in part, he explained.
Today's investors are clearly investing in developing markets and are not prone to panicky reactions because of possible changes to the country's assessment, he added.