Budapest, 29 September 2015 – In 2015 Q2, Hungary’s external balance continued to improve. In addition to the rising net lending, the individual sectors further reduced their external debt, which was associated with a continued reduction in the economy’s external debt ratios, thereby reducing the external vulnerability of the Hungarian economy. As an effect of data revisions, FDI investment by non-residents was higher than previously indicated, which may contribute to a further improvement in perceptions of the Hungarian economy.

According to the latest data, the annual surplus on the current account rose to 3.8 per cent of GDP and the capital account, mainly including EU transfers, showed a nearly 5 per cent surplus. Consequently, the economy’s net lending rose to 8.7 per cent of GDP, which exceeded significantly the level observed in other countries in the region.

The increase in net lending, calculated using the real economic approach, reflected increases in the foreign trade surplus and EU transfers. The improvement in the terms of trade due to the fall in commodity prices and stronger growth in exports compared to imports continued to partly contribute to the increase in net exports. The four-quarter value of EU transfers exceeded EUR 7 billion and, consequently, the transfer balance supported whole-economy net lending to an extent that has been unprecedented. The deficit on the income balance fell slightly, which partly reflected lower interest expenses due to the decline in debt ratios.

The net saving position of the Hungarian economy helped economic actors to further reduce their external debt. At the same time, FDI liabilities also fell in Q2, due to both one-off and seasonal factors. Net external debt, falling by some EUR 1.4 billion, was partly related to the government, as increased purchases of government securities by banks due to the MNB’s self-financing programme may have offset the market effect of significant sales of government securities by non-residents.

The country’s net external debt fell significantly to nearly 31 per cent of GDP on Q2, which reflected the continued outflow of debt, revaluation effects and GDP growth. Based on residual maturity, short-term debt rose to EUR 23.8 billion, in line with the Bank’s expectations. An explanation for this is that the increase was related in large part to a shortening in the maturity of government debt falling due in 2016. In addition, however, FX reserves, which stand at nearly EUR 35 billion, significantly exceeds the level required by investors.

Examining financial savings by sectors, the increase the economy’s net lending was closely related to the continued decline in net borrowing of general government to 1 per cent of GDP, which in turn reflected rising tax revenues due to growth in wages and employment and a reduction in the informal sector as well as falling interest expenses.