Hungary for ConvergenceHungary for Convergence

László BúzásLászló Búzás

Managing DirectorManaging DirectorÁKK Rt.ÁKK Rt.

Inflation target

Budget deficit

Debt/GDP

Convergence of long-term rates

Market development

Market harmonisation

Convergence CriteriaConvergence Criteria

InflationInflation

Hungary: Headline Inflation

100

102

104

106

108

110

112

jan.99 júl.99 jan.00 júl.00 jan.01 júl.01 jan.02 júl.02

%

Budget Deficit as Percentage of GDPBudget Deficit as Percentage of GDP

4,7%

3,7%

3,1% 3,0%

4,5%

5,7%

0%

1%

2%

3%

4%

5%

6%

7%

1998 1999 2000 2001 2002e 2003f

The 2002 figure excludes one-off items related to the introduction of the ESA95

Debt/GDPDebt/GDP

Public Debt/GDP

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Marketable HUF Debt Non-marketable HUF Debt Foreign Currency Debt

Maastricht criterion

Convergence of Long-term RatesConvergence of Long-term Rates

10 year HGB spread versus BUND

0

100

200

300

400

500

600

70019

99.0

1.20

1999

.04.

20

1999

.07.

20

1999

.10.

20

2000

.01.

20

2000

.04.

20

2000

.07.

20

2000

.10.

20

2001

.01.

20

2001

.04.

20

2001

.07.

20

2001

.10.

20

2002

.01.

20

2002

.04.

20

2002

.07.

20

2002

.10.

20

bps

The real change comes with EMU-membership

Market harmonisation

Market development

Main goal:

Creation of a competitive, efficient and

EMU- compatible government bond market

EU-Convergence

Price quotation

Settlement circle

Coupon payment frequency

Yield calculation

Business days (TARGET)

Redenomination

Market Harmonisation: Conventions

Auctions (Rules and Frequency)

Product innovation

Secondary market

Primary dealers

Foreign investors

Market Development

154 auctions in 2002 (104 T-Bill and 52 Bond)

Reverse auctions(25)

New auction calendar in 2003:

The number of bond auctions will decrease from 52 to 46

Less 3 years, more 15 years

Larger amounts

Auctions

Auction Calendar

B

A 3 & 15 year bond

3 M T-Bill 2.

5 & 10 year bond

3 M T-Bill 4. week

12 M T-Bill6 M T-Bill3 M T-Bill

3 year bond

12 M T-Bill6 M T-Bill3 M T-Bill 1. week

FridayThursdayWednesdayTuesdayMonday

3, 6 and 12 month T-Bills

3, 5, 10 and 15 year bonds

Less bond series (4 new bond series in 2003)

Larger sizes of the individual bond series

2001<EUR 1 bn

2002= EUR 1 bn

2003> EUR 1.5 bn

Increasing liquidity

Product Innovation

Primary dealers (13 in 2002)

Exchange auctions

Securities lending

Repo facility

Electronic trading system

Secondary Market

Foreign holdings equal to HUF1800 billion

An increase of HUF 730 billion in 2002

5% T-Bills – 95% Bonds

Approximately 50% of the marketable bonds

Average maturity 3.5 years

Foreign investors

Public debt : HUF 9224 billion

Approximately 56% of GDP

Domestic debt 75.4%, foreign debt 24.6%

Loans 19%, bonds 81%

Average maturity: 2.33 years

Duration: 1.96 years

The Public Debt PortfolioThe Public Debt Portfolio

Auction CalendarGross and Net Financing Requirements

Remark: 2002 excludes one-off items related to the introduction of ESA95

HUF billion1998* 1999 2000 2001 2002e 2003f

Budget deficit (excluding privatisation income)

370,2 338,1 330,0 413,2 941,5 569,1

Social Security 88,9 46,6 70,0 32,3 17,2 277,1Extrabudgetary Funds 12,5 40,4 0,0 2,3 2,2 -13,9Net Financing Requirements 471,6 425,1 400,0 447,8 960,8 832,3National Bank of Hungary 250,2 17,9

Privatisations (Income (-)) 13,1 -8,0 -0,9 0,0 0,0 -100,0

Redemptions 1843,3 2659,8 3088,7 2995,4 3951,3 4987,0Gross Borrowing Requirements 2327,9 3076,9 3487,8 3443,2 5162,3 5737,2

Domestic Debt: Maturity ProfileDomestic Debt: Maturity Profile

Maturity Structure of the Forint Denominated Government Bonds (31. December 2002)

- 100 200 300 400 500 600 700 800 900

1 000 1 100 1 200

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2026

HU

F B

illio

n

ExternalExternal Debt: Maturity ProfileDebt: Maturity Profile

Maturity Profile Foreign Currency Debt 31. December 2001

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

EUR

Mill

ion

Loans

Bonds

More informationMore information

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www.akk.hu

Benchmark Yield-curvesBenchmark Yield-curves

6

7

8

9

10

11

12

13

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

years

per

cen

tag

e

29.12.1999

29.12.2000

28.12.2001

31.12.2002

Yield DevelopmentsYield Developments

Benchmarks Yields

6

6,5

7

7,5

8

8,5

9

9,5

10

20

01

.12

.28

20

02

.01

.28

20

02

.02

.28

20

02

.03

.28

20

02

.04

.28

20

02

.05

.28

20

02

.06

.28

20

02

.07

.28

20

02

.08

.28

20

02

.09

.28

20

02

.10

.28

20

02

.11

.28

20

02

.12

.28

pe

rce

nta

ge

3 month 6 month1 year 2 years3 years 5 years10 years 15 years