Hungarian general government debt falls to 73.9% of GDP at end-2016

General government debt stood at 73.9% of GDP at end-2016 and declined by 0.8pps y/y, the National Bank of Hungary (NBH) released preliminary financial account data. In nominal terms, the debt level rose by 2.0% y/y to HUF25,922bn at the end of the year. The debt level inched up slightly by 0.2% q/q, which was due to forex revaluation effects whereas net debt repayments amounted to HUF 14bn in Q4, the NBH said. The government managed to repay debts during the quarter despite a large budget deficit, the data showed, which we think suggested financing out of government deposits. Net borrowing of the general government amounted to 7.3% of GDP in Q4, which was the largest quarterly deficit since Q1/2010. Net borrowing reached just 1.3% in the full 2016, in our opinion suggesting that the budget deficit is likely to be much lower than the planned 2.0% target.

Financial assets of the government fell by HUF220.2bn in terms of transactions in Q4. The decline was on account of lower deposits, which we associate with the large budget deficit during the quarter. Financial liabilities of the government increased, which was mainly due to higher payables related to EU funds. The stock of government bonds declined by HUF136.5bn in Q4 due to repayments of long-term bonds held by non-residents, the NBH said. Loans by the general government, however, increased because of short-term borrowing.

Net lending by the household sector was 5.4% of GDP in Q4 and narrowed by 1.4pps y/y. The net lending position of households was 4.5% in the whole of last year. We think that the lower net lending position suggests some improved propensity to spend and to borrow. Loans by households increased by HUF89.8bn in terms of transactions in Q4 – the second consecutive quarter with net borrowing by the sector. Total financial liabilities of households were up by HUF288.9bn, in our opinion reflecting also tax payables. Households’ financial assets rose by HUF810.8bn in terms of transactions in Q4. Households kept some share of the increase in currency and invested the larger part in transferrable deposits. Holdings of short-term debt securities also increased strongly, which should reflect the high net purchases of government debt.

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