## IMF Survey: Hungary Succeeds in Early Return to Market Financing

_IMF News, August 3, 2009_

## Source details

**Canonical URL:** [IMF Survey: Hungary Succeeds in Early Return to Market Financing](https://www.imf.org/en/news/articles/2015/09/28/04/53/socar073009b)

## Other formats

- [Markdown version](/en/news/articles/2015/09/28/04/53/socar073009b/index.md)
- [Structured JSON version](/en/news/articles/2015/09/28/04/53/socar073009b/index.json)
- [Bundle manifest](/en/news/articles/2015/09/28/04/53/socar073009b/bundle-manifest.json)

## Bibliographic details
- Authors: Alina Carare IMF European Department August
- Published: August 3, 2009

---

### Key developments
- Hungary's government raised €1 billion ($1.41 billion) in July by selling bonds on international capital markets, signaling a return of investor confidence.
- Hungary received an emergency $25 billion financing package from the IMF and other institutions in October 2008.
- James Morsink, the IMF’s mission chief for Hungary, stated: “Hungary has regained access to international finance, which is a testimony to the progress the Hungarian authorities have made in pursuing the right policies to address the effects of the crisis.”

### Crisis impact and vulnerabilities
- Global deleveraging in the fall of 2008 led to immediate financing difficulties for Hungary, given its high levels of government and external debt.
- Observed effects included:
  - Interest rates on government debt shot up.
  - The secondary market for government securities froze; primary auctions of government bonds had to be suspended.
  - The exchange rate depreciated rapidly; the swap market for foreign exchange dried up.
  - A large share of bank loans were denominated in foreign currency, causing households and corporations to experience debt-servicing difficulties as the exchange rate depreciated, which in turn raised concerns about the health of the banking system.
- Hungary is closely integrated into the global economy: at end-2008, portfolio investment by nonresidents in Hungarian assets amounted to about 38 percent of GDP, more than twice as large as in any other new EU member state.
- Exports account for 80 percent of the country’s GDP.

### Policy response
- Two key policy focuses: fiscal sustainability and financial stability.
- Fiscal measures:
  - The government reduced its spending in a durable way while allowing the fiscal deficit to increase somewhat to avoid exacerbating the economic contraction.
  - The government is expected to improve its underlying fiscal position by about 4 percentage points of GDP in 2009, and a further 1 percentage point of GDP improvement is planned for 2010.
  - Fiscal strategy aimed at protecting the poor and low-income earners by measures such as preserving the purchasing power of low-income civil servants despite the nominal freeze of the public sector wage bill; replacing a universal housing subsidy by a targeted scheme; canceling increases in disability pensions while increasing benefits for the poorest disabled; and creating a social fund to provide temporary relief to those particularly affected by the crisis.
- Financial-stability measures:
  - Immediate measures included a capital enhancement scheme and direct foreign exchange lending to banks without foreign parents.
  - The central bank introduced foreign exchange swap facilities to substitute for the frozen swap market.
  - Over the longer term, the government aims to strengthen bank supervision and reinforce the remedial action and bank resolution framework.
- Most IMF financing was disbursed between November 2008 and March 2009.

### Signs of recovery
- External financing conditions improved sufficiently to allow a €1 billion euro-denominated bond issue in July.
- Interest rates on government debt have fallen; auctions of government bonds have gone well.
- Forint exchange rate: depreciated to a low of 317 against the euro in March, and has recovered to about 270.
- The swap market for foreign exchange is returning to normal, and funding from parent banks to their Hungarian subsidiaries has remained stable.

### Outlook and risks
- GDP is projected to contract by about 7 percent in 2009 and 1 percent in 2010.
- Risks are large: Hungary remains vulnerable to a worsening of global or regional financial market conditions or a renewed deterioration of global economic prospects.
- Continued careful bank lending is expected given global deleveraging and the challenging economic outlook.

### Policy recommendations
- Continue implementation of policies aimed at improving fiscal sustainability and strengthening financial stability to provide a solid foundation for a strong economic recovery.

*IMF Survey: Hungary Succeeds in Early Return to Market Financing — By Alina Carare, IMF European Department, August 3, 2009.*

---


## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Hungary and the IMF](https://www.imf.org/external/country/HUN/index.htm)
- [Read latest staff report](https://www.imf.org/external/pubs/cat/longres.cfm?sk=23049.0)
- [Hungary gets $15.7 billion loan](https://www.imf.org/external/pubs/ft/survey/so/2008/CAR110608A.htm)
- [Interview: IMF mission chief](https://www.imf.org/external/pubs/ft/survey/so/2009/INT011209A.htm)
- [Watch the video](https://www.imf.org/external/mmedia/view.asp?eventID=1435)
- [$25 billion financing package](https://www.imf.org/external/pubs/ft/survey/so/2008/CAR102808B.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar073009b_