1. The Hungarian debt management during the EU enlargement process
András Réz
General Manager ÁKK Rt. 2

2. Economic and Financial Convergence
Inflation
Budget deficit
Debt/GDP
Convergence of long-term rates
Market development
Market harmonisation 2

3. Inflation

4. Budget Deficit as Percentage of GDP
The 2002 figure excludes one-off items related to the introduction of the ESA95

5. Debt level below 60% and the share of marketable debt increased

6. Convergence of Long-term Rates

7. Economic and Financial Convergence II.
Convergence process steady until 2002
Large FX and debt market fluctuations in 2003 – short and 10y spreads increased
Macroeconomic figures are not good
Government economic policy targets meeting maastricht criteria and early EMU membership 2

8. EU and EMU-Convergence
The real change comes with EMU-membership
Market harmonisation
Market development
Main goal:
Creation of a competitive, efficient and
EMU- compatible government bond market 2

9. Market Harmonisation: Conventions
Price quotation
Settlement circle
Coupon payment frequency
Yield calculation
Business days (TARGET) (in EMU)
Redenomination (in EMU) 2

10. Auctions (Rules and Frequency) Product innovation Secondary market
Market Development
Auctions (Rules and Frequency)
Product innovation
Secondary market
Primary dealers
Foreign investors 2

11. General experience in EMU:
Auctions
General experience in EMU:
with the declining gross borrowing requirements (deficit and maturities) less bond auctions and larger amounts
more active use of buy-backs and T-bills
Hungary:
Borrowing need still high
154 auctions in 2002, reverse auctions (25)
No. of auction was decreased in 2003, but gradually. 2

12. Less bond series (4 new bond series in 2003)
Product Innovation
3, 6 and 12 month T-Bills
3, 5, 10 and 15 year bonds
Less bond series (4 new bond series in 2003)
Larger sizes of the individual bond series
2001<EUR 1 bn
2002= EUR 1 bn
2003> EUR 1.5 bn
Increasing liquidity 2

13. Increasing role of reverse auctions Securities lending (from 2004)
Secondary Market
Primary dealers (13 in 2002)
Increasing role of reverse auctions
Securities lending (from 2004)
Repo facility (from 2004) and more active liquidity management
Electronic trading system 2

14. Foreign holdings equal to HUF1800 billion
Foreign investors
Foreign holdings equal to HUF1800 billion
An increase of HUF 730 billion in 2002
5% T-Bills – 95% Bonds
Approximately 50% of the marketable bonds
Average maturity 3.5 years 2

15. 25% of total debt is in foreign currencies
Foreign currency debt
25% of total debt is in foreign currencies
Main focus on benchmark bond issues in the single European market
A medium term aim to develop the European market for Hungarian debt in euro
1-2 benchmark bonds of min. 1 bn euro
New EuroMTS platform – more transparent secondary market 2

16. The Public Debt Portfolio
Public debt : HUF 9224 billion
Approximately 54% of GDP
Domestic debt 75%, foreign debt 25%
Loans 19%, bonds 81%
Average maturity: 2.33 years (HUF marketable)
Duration: 1.95 years (HUF marketable) 2

17. Thank you for your attention!
More information
Thank you for your attention!