Hungary Increases Target for Foreign Currency Bond Issuance

Hungary has suddenly decided to increase its target for foreign currency bond issuance this year, as the government in Budapest seeks new funds to cover a growing budget deficit, Bloomberg reports, according to Agerpres.

The Budapest executive announced that it will increase its issuance of foreign currency-denominated bonds by about three billion euros, which will be added to the 2.5 billion euros worth of bonds it issued at the beginning of the year. The terms and timing of the possible international bond issuance will depend on market conditions, the head of the Hungarian State Debt Management Agency, Mihaly Hoffmann, said at a press conference.

Prime Minister Viktor Orban, who previously anticipated a "promising" start to the year, now sees that economic difficulties could persist into next year, after a contraction in GDP in the first quarter. With his Fidesz party trailing in the polls by the opposition Tisza party and much of Hungary's EU funding frozen over rule of law concerns, Orban is under pressure to increase spending.

The increase in the eurobond target is a significant departure from previous efforts to steer institutional investors towards the forint bond market and rein in foreign currency bond issuance. Hungary will temporarily exceed its self-imposed target of keeping the share of foreign currency bonds at 30%, the State Debt Management Agency said.

Separately, the Economy Ministry said the budget deficit narrowed to 2.8 trillion forints ($8 billion) in the first five months of the year, noting that dividends paid by state energy company MVM to the state budget pushed the balance into surplus in May.

The Hungarian government now expects a budget deficit of 4.1 percent of GDP, compared with a previous target of 3.7 percent of GDP. To meet the revised deficit target, the government has frozen some spending that has saved 330 billion forints, or 0.4 percent of GDP, announced Kornel Kisgergely, an official at the Hungarian Ministry of Economy.

In April, rating agency S&P Global Ratings revised the outlook on Hungary's country rating to "negative" from "stable," putting the neighboring country on the brink of junk status. The other major rating agencies, Fitch Ratings and Moody's Ratings, have left Hungary two notches above junk status.