How can we repay the IMF loans?

Gábor Orbán
Macroeconomic analyst and Head of CEE Fixed Income

A review of the Hungarian IMF programme at the beginning of July revealed that the government was not a constructive negotiating partner, prompting the international body’s representatives to pack their bags. With the IMF’s departure, the opportunity has evaporated (at least for the time being) for us to draw the remaining IMF/EU funds or conclude a fresh agreement in the event of a negative market environment. The overwhelming majority of analysts and commentators have interpreted the development negatively. In reality, the dependence on foreign financing of the Hungarian economy – and within it the Hungarian state – is a given as our external debt is considerable. Although this state of dependence cannot be altered in the short term, we can change whom we are dependent on. But with the IMF’s departure, our dependence on the international market has only increased, and the latter is more unpredictable…

It is no wonder if the initial reactions have been negative, with our markets underperforming in recent months. Most articles and analyses point out that some sizeable amounts will mature in the years 2013-2014, which might have been spread out in the event of a fresh IMF programme. This aspect seems to have come to the forefront in terms of pricing: securities with short or mid-term maturities (due in 2011-2014) have grossly underperformed in the past two months. Naturally contributing to the rise in yields on shorter-term securities is the constantly present risk that a major interest rate hike may be needed in defence of the forint – as indicated by the interest hike already priced in this year in the case of derivatives (swaps, FRAs).

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