The State Debt Management Centre (AKK) plans Ft 7,067 billion of forint denominated securities issues in 2007, 10% less than in 2006, in light of the narrowing general government deficit, Finance Minister János Veres announced on Friday.
Veres said he expects yields to fall in 2007. I trust that, on the basis of a macroeconomic path of deficit reduction, yields will fall compared to the last half a year," Veres said. In 2006, gross forint market securities issues reached almost Ft 7,700 billion. Gross issues, including loans taken over worth a combined Ft 416 billion, came to Ft 8,881 billion, of which 9% was denominated in foreign currency. Net issues reached Ft 1,974 billion, of which Ft 1,417 billion or 72% was denominated in forint, including loan takeovers.
Net foreign-currency-denominated issues totaled Ft 556 billion or 28% of the total, and included Ft 86 billion in loans and Ft 470 billion worth in foreign-currency-denominated bonds. Hungary's general government deficit was Ft 2,034 billion in 2006, up from Ft 984 billion in 2005, and far up from original plans. Hungary's net financing requirement in 2006 came to Ft 1815.7 billion, up from Ft 1,154.2 billion in 2005.
Last year's financing requirement was lowered by privatization income of Ft 268.7 billion while increased by a Ft 14.8 billion transfer to the National Bank to offset 2005 losses on its assets in foreign government securities and by a net Ft 35.8 billion in budget pre-financing European Union funding. Hungary has been pre-financing EU funding since its accession, by net Ft 12.8 billion in the 2004 fragment year, and by net Ft 169 billion in 2005. With Ft 6,907.4 billion in expiring debt to be renewed, the gross financing requirement was Ft 8,723.2 billion in 2006, as against Ft 7,304.9 billion in 2005, when expires totaled Ft 6,150.7 billion.
Ft 5,390 billion of last year's Ft 8,881 billion gross issuance was in T-bills with maturities of at most one year. Up-to-one-year issuance made up, however, only 16% of net issuance last year. Net issues exceeded the total net financing requirement by Ft 158 billion, raising the balance of the Unified Treasury Account (KESZ), AKK department head András Réz said.
AKK sold seven forint bond series and four foreign currency denominated bonds in 2006. The biggest series was a three-year forint bond issued to an amount of Ft 535 billion or €2.1 billion, and five of the seven forint bond series on sale in 2006 exceeded €1.3 billion. The biggest foreign currency-denominated issue was worth €1 billion, made at the start of the year. Bond yields fluctuated markedly in 2006, Réz said, rising sharply in June when a higher deficit and the fiscal tightening was announced, and falling since early October.
On the whole of the year, however, most yields still rose. Those on terms under a year rose the most, by 150-200 basis points. Yields on terms between three and five years increased 30-60 basis points, but yields for the ten- and 15-year terms fell 30 basis points. The average interest on forint debt rose slightly to 7% at the end of 2006, or 1 percentage-point less than the prevailing central bank base rate.
Gross central budget debt was Ft 14,706 billion at the end of 2006, Ft 1,940 billion more than one year earlier. Hungary's state debt-to-GDP ratio was 62.4% at year-end. Réz noted that the figure is different from the one used for EU statistics, which include a broader range of borrowing. The increase of gross debt was slightly less than net issuance due to delivery repos of net Ft 21 billion and a Ft 13 billion profit on the firming of the forint compared to the end of 2005.
Domestic investors held an unchanged 52% of gross central budget debt at the end of 2006. Foreign investors held an unchanged 28% of overall budget debt in the form of foreign-currency debt and they also held the remaining 20% in the form of forint denominated securities. An unchanged 28% of all debt was in foreign currency, all of which was outstanding in euros. The share of floating-rate debt (including up-to-one-year debt) made up 31% of forint debt and 34% of foreign currency debt at the end of last year.
The average remaining period to maturity of forint debt slightly to 3.6 years by the end of 2006, and that of foreign currency debt fell slightly to 6.7 years. The duration of forint debt was 2.6 years and the duration of foreign currency debt was 4.2 years at the end of 2006. Veres recognized Hungary's biggest government securities dealers at the press conference.
ING Bank was recognized as the primary dealer of the year 2006, ranking first in discount-bill auction purchases, being the biggest secondary market dealer as well as AKK's biggest repo partner. OTP Bank was cited as number 1 in terms of bond auction purchases, and Unicredit as the one increasing its market share the most last year.