No IMF/EU deal before 3Q

MNB

Hungary is not likely to secure a deal with the IMF and the EU on a new loan package before the third quarter of this year, given the divergent stances of the government and the two international lenders, but the government will eventually need an agreement to ensure sustained medium-term financing, London-based emerging markets economists said on Wednesday.

Barclays Capital, one of the largest investment banking groups in the City, said in its Emerging Markets Quarterly report that until now, strong global risk appetite in 2012 has benefited Hungary's positioning, with strong demand for Hungarian government securities allowing the government to put off issuing around €4 billion in global bonds, an important part of its €15.5 billion 2012 financing plan.

Overall, HUF debt issuance is running somewhat ahead of schedule so far this year. However, the government faces large amortization payments in May and June, and "we believe that the government needs to reach an agreement with the IMF/EU; otherwise, its medium-term financing program may not be viable".

"We think rate cuts will begin once the IMF/EU program is negotiated and implemented ... Improved market expectations should then facilitate rate cuts starting in Q4 12, in our view, with total cuts of 150bp bringing the policy rate to 5.5% in 2013", Barclays Capital's analysts said.

Hungary plans to issue €4 billion on the market and borrow another €800 million in international development loans to match this year's foreign exchange maturities of €4.8 billion under the annual issue plan announced by state debt manager AKK in December.

This year's expiries include SDR 2.9 billion or about €3.4 billion principal repayments to the International Monetary Fund (IMF) in loans drawn under Hungary's 2008 IMF/EU standby agreement. The repayments are due in quarterly installments, with the first repayments made in February, the next one, worth about 920 million, in May-June, a similar amount due in Q3 and about 930 million due in Q3.

This year's foreign bond expiries include a Japanese yen 45 billion bond due in July and a €1 billion bond maturing in November.

Speaking of the schedule for this year's foreign currency issues last December, AKK deputy head László András Borbély said AKK intends to time these, as it usually does, for the first half of the year as much as possible. He noted that that timing will depend on market conditions, and added there was little chance for such issues while talks are going on with the IMF.

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