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UPDATE - Hungary international reserves boosted by EU funds, EIB loan and pension assets sales

The international reserves of the National Bank of Hungary (MNB) rose sharply in the third quarter because of big net EU transfers, a European Investment Bank (EIB) loan and the sale of some assets earlier transferred to the state from private pension funds, the MNB said in its quarterly report published on Friday.

The reserves rose by €1.8bn in the quarter despite the €1.88bn spent by the government on the purchase of a 21.2% stake in Hungarian oil and gas company MOL in July and the fact there were no foreign bond issues in the period.

The reserves rose to €38.8bn, a new record, at the end of September.

Hungary's Government Debt Management Agency (ÁKK) took out a total of €490m development loans from the EIB to finance various projects, the MNB said, listing the factors boosting the reserves in the third quarter.

ÁKK's other debt-management related transactions boosted the reserves by another nearly €1.2bn in Q3, the report said.

The MNB listed sales from the private pension fund assets transferred to the state Pension Reform and Debt Reduction Fund, managed by ÁKK, and a big rise in the so-called mark-to-market deposits with ÁKK.

ÁKK figures show that the foreign exchange denominated assets of the Pension Reform and Debt Reduction Fund fell by HUF 131bn -- about €500m -- in July after a HUF 14bn drop in June. In July, HUF 106bn worth of investment fund units and exchange traded fund (ETF) units, HUF 23bn in foreign shares and HUF 1.6bn in foreign-issued Hungarian government bonds left the portfolio, that is, were sold, and the sales could have continued into August and September. The latest data available for the end of July show HUF 270bn of foreign currency-denominated investment fund units and ETFs and HUF 72bn of foreign shares in the Fund's portfolio.

The mark-to-market deposits placed with ÁKK by its partners related to currency swaps rose HUF 83bn -- about €300m -- in July-August combined. There are yet no figures available for September.

Hungary received €1.1bn in net transfers from the European Union, cash flow-based figures in the reserves report show. The quarterly net funding matched the previous peak received in the first quarter of 2009.

The reserves were also boosted by an unusually high, €450m yield on the reserves in the quarter, most likely reflecting a sharp rise in euro-zone government securities yields.

Aside from €12m payments made by the MNB to service its own debt, the almost €1.5bn payments made on behalf of budget organisations -- dominated by the closure of the MOL deal -- reduced the reserves in the third quarter. The payments were less than the almost €1.9bn paid out in the MOL transaction, suggesting budget organisations received some FX inflows or repayments in the period.

Central budget institutions must submit savings plans by Friday

The heads of Hungary's central budget-funded institutions must submit plans by Friday, October 14, on making savings necessary to achieve the 2012 fiscal deficit target, a decree published in official gazette Magyar Közlöny on Thursday shows.

The plans must be submitted to the National Economy Ministry which will prepare a summary for the government by October 21.

The 2012 budget targets a deficit of 2.5% of GDP