Hungarian Government to Issue Foreign Bonds After Receiving Massive Chinese Loan
The Hungarian government recently announced the successful securing of a EUR 1 billion loan from China, with more favorable terms than what the market offers. Finance Minister Mihály Varga revealed this development, although specific details regarding interest rates were not disclosed. Varga also hinted at the possibility of Hungary issuing a Samurai bond in Japan later this year.
The government’s objective is to engage more Hungarian institutional investors, such as banks and insurance companies, in purchasing Hungarian government securities. This strategy aims to reduce dependence on foreign and retail investors, potentially impacting the conditions of retail government bonds. Varga, speaking to ATV, mentioned that the loan’s terms are advantageous compared to prevailing market conditions and will primarily support infrastructure development. However, further specifics regarding interest rates and allocation of funds were not provided.
Varga justified the lack of additional information by stating that revealing more details could potentially harm business interests in bilateral agreements.
Hungary’s debt management strategy has traditionally relied on multiple sources to diversify its capital requirements. In recent years, alongside traditional Anglo-Saxon and European markets, Qatar, Japan, and China have emerged as significant partners.
An upcoming Samurai bond issuance in Japan is in the pipeline, as part of Hungary’s efforts to maintain good relationships with its international partners. Varga also highlighted the positive history of collaboration with China, including previous issuances of Panda bonds, including Green Panda Bonds that support green transitions. The latest loan from China, negotiated at a favorable rate, will predominantly go towards financing transportation and energy infrastructure projects.
In a previous interview with Info radio, Economic Minister Márton Nagy emphasized that Hungary’s foreign currency debt is currently at an appropriate level. However, Nagy stressed the importance of prioritizing debt issuance in Hungarian forints and extending its maturity. The regulation of investment funds and insurers, encouraging them to invest in government bonds, was also discussed.
Nagy noted that this year’s state budget primary balance is neutral, with the deficit stemming solely from state interest expenses. The deficit corresponds to the size of interest expenses, estimated at 4.3-4.5% of GDP. However, next year, significant reductions in these interest expenses are expected, bringing them down to 3.4-3.5% of GDP.
