Hungary expects around HUF900bn of EU fund refunds

Hungary has so far spent more than HUF 1.5tn as pre-financing for EU programs, finance minister Mihaly Varga said in an interview for Reuters. EU fund reimbursements have reached only HUF 600bn so far but the government expects to receive the remaining amounts by the end of the year based on current discussions, Varga stressed. We think this means expectations of around HUF900bn of EU fund revenues in Nov-Dec, which we consider quite optimistic. EU fund reimbursements have resumed in the past couple of months but the pace is far slower, in our opinion making it unrealistic to expect a substantial pick-up in the monthly amount of reimbursements. Still, the EU fund gap should not matter for the budget deficit target of 2.4% of GDP for 2018, in our view, as the ESA budget methodology eliminates it by accounting the EU fund expenditures only when the respective reimbursements are received.

Economic growth will exceed 4% next year as well, Varga stated. The government expects a GDP growth of 4.1% in 2019. The economy will be supported by government measures to stimulate consumption while manufacturing and services will contribute to growth on the supply side, Varga said. He said that the high growth was achievable despite expected slowdown in Europe and added that Hungary has not felt a direct impact from a possible slowdown in car demand. Car sales have fallen in some EU countries, Varga acknowledged but argued that this was mainly on account of new regulations issued by the EU. We think that Varga thus implicitly confirmed analyst comments about the recent weakness of Hungary’s car industry being due to the new EU emission measurement standard.

The government continues to aim to reduce the share of forex debt and the share of debt held by non-residents, Varga said. Accordingly, he signaled that the issue of a new Eurobond was unlikely at the start of next year, according to our interpretation. He confirmed that the government will launch a retirement bond, which will have a similar pricing to the existing children-saving bonds carrying a 3pps premium over inflation. The premium might depend on the age of the investor though, Varga noted. The retirement bond will be available only to retail investors and will pay a lump sum at retirement of monthly instalments, he added.

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