FINANCING THE BUDGET AND THE CENTRAL GOVERNMENT DEBT IN 2016 György Barcza 16.12.2015
MAIN TOPICS FINANCING OF THE CENTRAL GOVERNMENT IN 2015 MAIN CHARACTERISTICS OF THE FINANCING PLAN FOR 2016
FINANCING IN 2015 1. Ample demand for government bonds and retail securities, higher issuance 2. The main objectives of debt management has been met 3. Refinance the maturing FX debt mainly from the domestic market, also early repayments of FX debt: the share of FX debt decreases from 38 percent to 32 percent in 2015 4. Retail issuance exceeds the plan (the highest net retail issuance ever, more than HUF 900 billion by the end of November) 5. Intense bond buy-backs, switch auctions: increasing average time to maturity of HUF debt
GOVERNMENT BOND ISSUANCE EXCEEDS THE PLAN Total accepted amount 2 203 Bid-cover ratio: 2.9 Non-competitive phase 406 Accepted amount 1 797 Bids 4 253 Offered amount 1 466 0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500 HUF billion Source: ÁKK Zrt. (end-november) 104 percent of the original plan has been reached by the end of November
WHILE YIELDS HAVE BEEN DECREASING 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% Short term yields below the CB base rate Source: ÁKK Zrt., MNB (end-november) CB base rate 3-month yield 5-year yield Decreasing short term yields, stable long term yields
HUF billion Points WHILE NON-RESIDENT HOLDINGS OF HUF DEBT DECREASED 5 500 660 5 000 4 500 4 000 3 500 650 640 630 620 610 3 000 600 Non-resident holdings Source: ÁKK Zrt., KELER (end-november) MAX Composit Index Decreasing non-resident holdings
HUF billion THE OUTSTANDING AMOUNT OF RETAIL HUF SECURITIES INCREASED SIGNIFICANTLY 4 000 3 500 3,336 3 000 2 500 2 000 1 500 1 000 500 0 1,689 2,411 Source: ÁKK Zrt. Retail bills Retail bonds More than HUF 900 billion net sale by the end of November
HUF billion REDUCING REFINANCING RISK FOR THE COMING YEARS, IMPROVING DEBT STRUCTURE 1 000 900 886 800 700 600 638 500 400 434 401 378 300 200 100 140 91 120 0 2012 2013 2014 November 2015 Buy-backs Switch auctions Source: ÁKK Zrt. Besides early repayment of FX loans and FX bond buy-backs took place in 2015
DECREASING SHARE OF FX DEBT, INCREASING DOMESTIC FINANCING Breakdown of government debt by investors 100% 80% 60% 55% 56% 57% 55% 53% 52% 52% 50% 49% 44% 40% 31% 34% 39% 45% 53% 40% 20% 0% 45% 44% 43% 45% 47% 48% 48% 50% 51% 56% 60% 69% 66% 61% 55% 47% Residents Non-residents Source: ÁKK Zrt., MNB, Keler Share of FX debt 60% 50% 40% 30% 20% 10% 0% 35% 30% 25% 24% 26% 28% 28% 29% 37% 45% 44% 49% 40% 40% 38% 32% Source: ÁKK Zrt.
FINANCING IN 2015 - SUMMARY 1. Decreasing debt ratio 2. Increasing retail financing 3. Decreasing share of FX debt 4. Decreasing yields 5. Improving debt structure
MAIN CHARACTERISTICS OF THE FINANCING PLAN FOR 2016 MAIN CHARACTERISTICS OF THE FINANCING PLAN FOR 2016
THE OBJECTIVES OF DEBT MANAGEMENT IN 2016 To maintain low cost financing taking account of risks in the long run 3 main objectives of debt management: 1. Decreasing debt 2. Increasing domestic financing (retail) 3. Decreasing share of FX debt Principles applied in order to achieve the above objectives: increase the role of domestic financing increase the direct retail sales decrease the share of FX debt within the total debt refinancing FX redemptions mainly from the domestic market taking into account of domestic savings finance the maturing HUF debt and the deficit of the central government by domestic issuance the flexible auction system and issuance calendar continue to be used allowing adaptation to market needs
DEBT MANAGEMENT STRATEGY BENCHMARKS IN 2016 1. Currency mix of the total debt: the share of FX debt within the total debt must be below 35 percent (35% at end-september, 33% expected for end-2015) 2. Currency mix of FX debt: 100% ±5% in euro (99.6%) 3. Fix / floater composition: HUF debt: share of fix debt 61-83% (62.2% end-september) FX debt: share of fix debt 66% ±5% (64% end-september) 4. Duration: 3 years ±0.5 year (3.1 year at end-september) 5. Liquidity: safe level of cash funds in the Single Treasury Account
PLANNED VOLUME AND STRUCTURE OF GROSS FINANCING NEED HUF billion Net financing requirement 762 EUR billion Redemption of HUF government bonds 453 Planned bond buy-backs 270 Redemption of retail securities 2,252 Redemption of discount T-bill (OECD method) 889 Redemption of international FX bonds 541 1.7 Redemption of domestic FX bonds (P MAK) 473 1.5 Redemption of FX loans 503 1.6 o/w loan from the European Commission 468 1.5 Total redemption 5,380 Gross financing requirement 6,142 Low deficit and HUF bond redemption, higher FX redemption (due to EC loan)
HUF billion PLANNED VOLUME AND STRUCTURE OF GROSS ISSUANCE 7 000 6 000 5 000 4 000 3 000 2 000 Total: 6,389 234 312 155 1,061 2 752 Residency Bond and P MAK International FX bond HUF loans Discount T-bills Retail securities Government bond 1 000 1 875 0 Source: ÁKK Zrt. 2016 plan HUF bond- and retail issuances are the main source of funds. International FX issuance(s) is expected to amount EUR 1 billion.
HUF billion PLANNED VOLUME AND STRUCTURE OF NET ISSUANCE 2 500 2 000 1 500 1 000 500 Total: 1,008 155 172 500 1 152 FX loans FX bond HUF loans Discount T-bills 0-500 -1 000 Source: ÁKK Zrt. -468-503 2016 plan Retail securities Government bond Negative net FX issuance, positive net domestic issuance. Significant role of bond and retail issuance within the net HUF issuance
FINANCING PLAN FOR 2016 - SUMMARY 1. Decreasing net financing need 2. Low redemption of HUF bonds due to the buy-backs and switch auctions in previous years 3. Significant (EUR 4.8 billion) FX redemption, including repayment of the last tranche of the loan lent by the European Commission (EUR 1.5 billion) 4. The role of HUF bonds and retail securities is the most important 5. Only small international FX issuance (e.g. renminbi) 6. Significant positive net HUF issuance, large negative net FX issuance 7. Increasing domestic financing, decreasing share of FX debt (27% expected by end-2016) 8. Maintaining liquidity reserves 9. Flexible changes in the issuance structure according to market conditions
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