Budapest, 31 March 2016 – The external vulnerability of Hungary continued to improve in 2015 Q4. The annual value of net lending rose to nearly 9 per cent of GDP, while market participants repaid substantial amounts of foreign loans. As a result, the net external debt of Hungary decreased further and reached the level recorded in Poland. Short-term external debt dropped to EUR 21 billion by the end of the year, and the level of foreign exchange reserves thus remains well above investors’ expectations.
As in previous years, external balance indicators remained favourable throughout 2015, and economic growth continued to be backed by a sustainable financing structure. Both the current account surplus and the capital account surplus rose to 4.4 per cent of GDP, with the latter boosted by the record-high drawdown of EU funds. At almost 9 per cent, net lending significantly exceeds the values registered in other countries of the region.
Growth in net lending was driven by several factors. On the one hand, along with an increase in export market share, the trade surplus was also supported by the fall in energy prices. On the other hand, the decline in external debt in recent years and subdued yield levels also moderated the deficit on the income balance. Finally, the drawdown of EU funds intensified after the closure of the EU budget period.
Accompanied by high net lending, the sectors’ contribution to the reduction in Hungary’s net external debt exceeded EUR 9 billion in 2015, surpassing the values recorded in previous years. In contrast to the past, the largest decline was recorded in the banking sector. However, thanks to the self-financing programme of the MNB and households’ demand for government bonds, the external debt of general government also decreased significantly, while corporations continued the repayment of foreign loans. The increase in net lending emerged in the context of general government’s extremely low – below 2 per cent – borrowing requirement and the further accumulation of financial savings in the private sector.
Following a sharp decline, by the end of 2015 net outstanding external debt dropped to 25 per cent of GDP, reaching the level reported by Poland. By the end of the year, short-term external debt was reduced to EUR 21 billion, and thus the reserve adequacy of Hungary is still favourable. Owing to the decline in maturing debt and to the increase in net lending, the gross borrowing requirement – a factor which had posed severe funding risks in the past – fell considerably in 2015, with Hungary reporting one of the lowest levels among its peers in the region.