Budapest, 3 October 2016 – Hungary’s external balance indicators developed favourably in 2016 Q2. The annual surplus of the current account continued to rise, while net lending stabilised at a high level of 7.5 per cent of GDP. In parallel with the decline in the external debt ratios, short-term external debt also decreased and the foreign exchange reserves still significantly exceed the level expected by investors. As a result of the revision of data, foreign direct investment was higher in 2015 than previously indicated, which improves the picture of domestic processes, also in the context of longer-term growth.

In 2016 Q2, net lending amounted to 7.5 per cent of GDP. Net lending stabilised at a high level and was the result of the growth in the trade surplus, the improvement in the income balance and the fall in EU transfers. Growth in exports surpassed import growth and the terms of trade improved as a result of the moderate oil prices: both of these factors supported the rise in trade surplus, which thus came close to 10 per cent of GDP. The income balance deficit contracted further due to the declining external debt and lower interest.

The fall in net external debt accelerated in the second quarter. The sectoral breakdown of the decline was significantly influenced by the fact that in relation to the conversion of foreign currency loans into forints the central bank provided the banks with foreign currency liquidity, as a result of which banks’ net external debt fell considerably, while that of the consolidated general government rose. Nevertheless, the decrease in the general government’s gross external debt continued, supported by the repayment of the last instalment of the EU loan and the continued sales of government securities by non-residents. The persistently high financial savings of households and the repeatedly substantial government securities purchases by the public supported the decrease in the general government’s external debt in the second quarter as well. As a result of the higher revenues from rising consumption and wages and the lower interest expenses, the general government’s net borrowing is still at its historic low.

The decline in the net and gross external debt ratio continued in the middle of 2016 as well: the ratio of net and gross external debt to GDP fell to 23 per cent and 73 per cent, respectively, at the end of June. In parallel with the gross external debt, short-term external debt – which is key from the perspective of the country’s risk perception – also continued to fall, dropping to below EUR 20 billion. In the second quarter, foreign exchange reserves amounted to EUR 24.8 billion, and thus they still substantially exceed the key reserve ratios monitored by investors.