Year end is coming: the ÁKK is positioning the debt ratio

HUNGARY - In Brief 30 Sep 2018 by Istvan Racz

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As usual, year end coming soon, the usual question is raised again: how on earth will the government manage to generate a further small reduction of its debt ratio by the last day of December. In 2018, this problem looks a little bit more serious than last year. The central government's debt, the absolutely predominant part of total government debt, reached 71.5% of GDP at end-August, up from 70% in December 2017. This compares to 70% in August 2017, against 71.8% at end-2016. Besides, the government had deposits at the MNB worth 2.7% of GDP at end-August, much less than sufficient to secure a great degree of flexibility. Given that the systematic reductions of the gross debt ratio represent a constitutional requirement and also a cornerstone of policy, the government indeed will have to watch its step in the rest of this year, in terms of both net spending and of its debt issuance.From this point of view, it sounds interesting that the government's debt management agency is considering to buy back relatively expensive FX debt out of the proceeds of the newly issued EUR 1bn long-term bond, according to an interview given by György Barcza, head of the ÁKK. The idea is certainly not new, the ÁKK did a very similar thing already last year, which contributed to a 21% yoy reduction of the central government's net interest expenditure in January-August 2018, to 1.9% of GDP from 2.6% in the same period of 2017. But this time around, Mr. Barcza added a word of caution, saying that the ÁKK had not decided yet; it will want to see how the government's cash flow is developing towards the end of 2018.This latter remark was most probably related to the existing uncertainty around E...