THE FINANCING OF THE CENTRAL GOVERNMENT IN 2008

1.Financing in H Financing in H Host: Ferenc Szarvas, CEO Presented by: dr. László András Borbély Deputy CEO (General Affairs) MAIN TOPICS:

1. FINANCING IN H1 2008

1.Decreasing net financing requirements (4% of GDP in 2008) 2.Diminishing effects of the 2.Diminishing effects of the sub-prime crisis after the end of The financing plan originally had been built on the increasing role of the HUF bonds and the decreasing role of the discount T-bills FINANCING IN H – ASSUMPTIONS Improving government securities market situation – improving budget figures

1.The effects of the sub-prime crisis have intensified since February 2008 (the non-resident holdings of HUF government securities have decreased by more than HUF 400 bn since then) 2.Substantial and concentrated net selling of government securities due to portfolio restructuring of the pension funds 3.Even more favourable net financing requirements (new projection: 3.8%GDP); it helps, but does not compensate for the unfavourable market situation FINANCING IN H – OUTTURN Unfavourable government securities market situation - more favourable budget position

DEBT TRANSACTIONS* IN H *Excluding debt assumptions and other foreign currency transactions Lower net financing requirement and net issuance

DEBT TRANSACTIONS* IN H *Excluding debt assumptions and other foreign currency transactions Gross issuance and redemptions higher than planned Lower net issuance

GROSS REDEMPTIONS IN H Higher amount of bond and discount T-bill redemptions

GROSS ISSAUNCE IN H Lower issuance of retail government securities and bonds Higher issuance of foreign currency debt and discount T-bills

SECONDARY MARKET TURNOVER OF GOVT. SECURITIES Q2 2008: falling turnover

DEVELOPMENT OF NON-RESIDENT HOLDINGS OF GOVT. SECURITIES IN THE FIRST HALF OF RECENT YEARS Instead of increase, a decline seen in

CHANGES IN THE GOVT. SECURITIES HOLDINGS OF INSURANCE COMPANIES AND PENSION FUNDS Modification of the investment structure Source: NBH

BREAKDOWN OF THE NET FINANCING BY INVESTOR SECTORS Foreign funds raised in foreign currency Strongly increasing financing by banks

1.Lower bond issuance due to deteriorating domestic demand 1.Lower bond issuance due to deteriorating domestic demand; higher issuance of discount T-bills and foreign currency debt instead 2.The originally planned amount of marketable foreign currency issuance is practically reached already in H1 (EUR 1.7 billion) 3.Project loans from international financing institutions drawn down in EUR FINANCING IN H – OUTTURN Changes in the issuance calendar in 2008: 6-week auction cycle; the 6-month T-bill phased out; higher volume of individual bond series.

2. FINANCING IN H2 2008

THE PLANNED GROSS ISSUANCE IN 2008 Substantially decreasing bond issuance *Excluding debt assumptions and other foreign currency transactions Higher amount of foreign currency and discount T-bill issuance

THE PLANNED NET ISSUANCE IN 2008 Significantly lower net bond issuance * Excluding debt assumptions and other foreign currency transactions Higher amount of net foreign currency and discount T-bill issuance

DEBT TRANSACTIONS* IN H Significant decrease in both gross and net issuance * Excluding debt assumptions and other foreign currency transactions

GROSS REDEMPTIONS IN H Higher amount of discount T-bill redemption; lower amount of redemption in all other debt instruments

GROSS ISSUANCE IN H Lower volume of issuance in all debt instruments, except discount T-bills

1.The effects of the sub-prime crisis are seen to prevail at least until the end of The effects of the pension funds’ portfolio restructuring are felt in H2 as well, but to a lower extent. 3.It is necessary to keep the issuance of domestic bonds cut back in H2 as well, in order to stabilise the market. 4.Discount T-bills and foreign currency issuance have a higher importance in financing in the year SUMMARY – FINANCING IN H2 2008

5.Measures taken in order to reach long-term strategic objectives: SUMMARY – FINANCING IN H week auction cycle introduced in case of govt. bonds; t the 6-month T-bill has been phased out; h higher volume of individual bond series.

Thank you for your attention!