October 1, 2014 / 3:23 PM / 3 years ago

REUTERS SUMMIT-Hungary won't cut back forint bond sales in rest of 2014

(Adds further comments from Borbely)

* For other news from Reuters Eastern Europe Investment Summit, click here

* Public debt level to be lower at end 2014 than at end-2013

* Stronger forint would help achieve goal of cutting debt

* Aim is to refinance fx expiries from forints next year

By Krisztina Than and Sandor Peto

BUDAPEST, Oct 1 (Reuters) - Hungary's debt agency AKK is not planning to cut back forint bond sales in the rest of 2014 as several factors will reduce the public debt to GDP ratio anyway by year-end, a senior AKK official said on Wednesday.

Laszlo Borbely, deputy chief executive of AKK, told the Reuters Eastern Europe Investment Summit that the goal was for debt to GDP to decline from 79.4 percent at the end of 2013.

The debt level rose to 85 percent of GDP by the end of the second quarter, which Borbely said was due to higher forint debt sales in the first six months as the AKK frontloaded issuance.

That was partly because of changes made by the National Bank of Hungary to its main liquidity management tool which forced foreign banks to buy more government bonds.

Borbely said Hungary's $3 billion dollar bond issue in March had pre-financed foreign currency debt that matured in July and November, and that those expiries, totalling 3 billion euros, would also help reduce debt in the second half of the year.

The forint's exchange rate will be the third, decisive factor, he said. About 40 percent of Hungary's debt is denominated in foreign currency.

"A stronger forint than the current exchange rate would make it easier to achieve the goal (of declining debt ratio)," he said, adding that cutting debt was a "very strong priority."

The forint traded at around 310 versus the euro on Wednesday.

Borbely said there was no need to cut back forint bond sales during the rest of the year, as the amounts offered at weekly treasury bill auctions have already been lowered, which is also helping to reduce debt.

The AKK is currently offering 40 billion forints worth of three-month bills at auctions and selling 50 billion of the bills, instead of 60-90 billion earlier this year.

Borbely also said that next year foreign currency debt expiries will be significantly lower than this year. The AKK says on its webpage that next year about 2 billion euros worth of foreign currency bonds will expire.

"We expect to refinance next year's foreign currency expiries in forints, that's our approved strategy," he said, adding that the 2015 financing plan will only be published in December, after approval by the Economy Ministry.

Neighbouring Romania plans to issue a Eurobond before the end of this year to pre-finance its 2015 needs, the finance ministry's deputy treasury director told Reuters.

IMPACTS

Borbely said plans to force banks to convert billions of euros of foreign currency mortgages into forints next year could also affect the government debt market.

Both household loans and bank deposits have declined in recent years. Money has flowed into investment funds and government securities which offered better returns.

"The question is how the bank sector will react to this (conversion) and how that will impact the debt market. What kind of a fight we will see for deposits?" Borbely said.

Another factor that could influence debt markets going into 2015 is the divergence between the U.S. Federal Reserve, which is gradually tightening policy, and the European Central Bank, which is expected to pump in more liquidity to lift growth.

Borbely said he did not expect Hungary's debt market to be hit by capital withdrawals.

"You cannot look at only one impact, as there will be two impacts," Borbely said. "I do not expect a significant withdrawal of capital (due to the expected interest rate hike by the Fed)."

(For more summit stories, see [ID:nL6N0RU1Z2)

Follow Reuters Summits on Twitter @Reuters_Summits (Reporting by Krisztina Than and Sandor Peto; Editing by Catherine Evans)

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