Hungary wants to cut government debt yields to a sustainable level by agreeing on an International Monetary Fund bailout, clearing the way to sell Eurobonds, Economy Ministry State Secretary Zoltan Csefalvay said.
The government’s “primary target” is to reduce yields to less than 7 percent, Csefalvay said yesterday in an interview in Budapest. Hungary should sell Eurobonds after obtaining a safety net in the first half of 2012, he said.
“The main issue is that we need lower yields to finance this public debt,” Csefalvay said. “I think the primary target is below 7 percent but certainly it depends on how the market will react, it certainly depends on the size, the conditions and many other factors.”
Prime Minister Viktor Orban, who had shunned international aid after coming to office in 2010, pledged to work toward a “quick” agreement with the IMF and the European Union on Jan. 5 after the forint fell to a record against the euro and the yield on the 10-year government bond exceeded 10 percent. Hungary’s sovereign credit is rated junk at Moody’s Investors Service, Fitch Ratings and Standard and Poor’s.
The forint was the world’s worst-performing currency against the euro in the second half of 2011, losing almost 16 percent. It’s risen more than 9 percent since Orban’s Jan. 5 pledge, the most among currencies tracked by Bloomberg.
‘More Stable Environment’
With an IMF deal “we will have a more stable exchange rate,” Csefalvay said. “And certainly for the growth, you need a more stable environment, stable exchange rate and lower yields to finance the state debt.”
The yield on the 10-year government bond declined to 8.6 percent yesterday from 10.7 percent on Jan. 5. Hungary sold 60 billion forint ($269 million) of 3-month Treasury bills yesterday, 10 billion forint more than planned, at an average yield of 7.32 percent, unchanged from the last sale of the same maturity on Feb. 7.
Hungary, the EU’s most indebted eastern member with public debt level representing 83 percent of gross domestic product at the end of September, will probably wait for an IMF agreement before selling Eurobonds, Csefalvay said.
“The IMF’s safety net could have influence on the yield and I think it’s really logical to have the timing after that,” Csefalvay said. “We have to wait certainly for the deal.”
The government maintains that it doesn’t want to tap IMF financing, preferring instead to raise debt on the market at lower yields than currently, Csefalvay said.
EU Terms
The government may reach an agreement with the IMF and the EU at the end of the first quarter or the beginning of the second, he said.
Hungary can’t begin formal talks until it meets EU and IMF demands to change a disputed central bank regulation. The 27- member bloc has also requested changes to overhauls of the judiciary and data-protection ombudsman’s office.
The government’s reply to the European Commission, to be sent by a Feb. 17 deadline, may “settle all the points that were raised” by the EU executive, Csefalvay said.
“Negotiations need time and that’s why I said end of first quarter maybe in the second but certainly in the first half of the year we will have this” agreement, Csefalvay said. He declined to speculate on the size of a possible loan.
(Bloomberg)