THE FINANCING OF THE THE FINANCING OF THE CENTRAL GOVERNMENT INCENTRAL GOVERNMENT IN

20020088

1. Financing in H1 20082. Financing in H2 2008

Host: Ferenc Szarvas, CEOPresented by: dr. László András Borbély

Deputy CEO (General Affairs)

MAIN TOPICS:

1. FINANCING IN H1 2008

1. Decreasing net financing requirements (4% of GDP in 2008)

2.2. Diminishing effects of the Diminishing effects of the sub-prime crisis after the end of 2007

3. The financing plan originally had been built on the increasing role of the HUF bonds and the decreasing role of the discount T-bills

FINANCING IN H1 2008 – ASSUMPTIONS

Improving government securities market situation –

improving budget figures

1. The effects of the sub-prime crisis have intensified since February 2008 (the non-resident holdings of HUF government securities have decreased by more than HUF 400 bn since then)

2. Substantial and concentrated net selling of government securities due to portfolio restructuring of the pension funds

3. Even more favourable net financing requirements (new projection: 3.8%GDP); it helps, but does not compensate for the unfavourable market situation

FINANCING IN H1 2008 – OUTTURN

Unfavourable government securities market situation - more favourable budget position

DEBT TRANSACTIONS* IN H1 2008

*Excluding debt assumptions and other foreign currency transactions

Lower net financing requirement and net issuance

DEBT TRANSACTIONS* IN H1 2008

*Excluding debt assumptions and other foreign currency transactions

Gross issuance and redemptions higher than planned

Lower net issuance

GROSS REDEMPTIONS IN H1 2008

Higher amount of bond and discount T-bill redemptions

GROSS ISSAUNCE IN H1 2008

Lower issuance of retail government securities and bonds

Higher issuance offoreign currency debtand discount T-bills

SECONDARY MARKET TURNOVER OF GOVT. SECURITIES

Q2 2008: falling turnover

12 72812 728

DEVELOPMENT OF NON-RESIDENT HOLDINGS OF GOVT.SECURITIES IN THE FIRST HALF OF RECENT YEARS

Instead of increase, a decline seen in 2008

- 481- 481

CHANGES IN THE GOVT. SECURITIES HOLDINGS OFINSURANCE COMPANIES AND PENSION FUNDS

Modification of the investment structure

429429 447447 287287 100100

Source: NBH

BREAKDOWN OF THE NET FINANCING BY INVESTOR SECTORS

Foreign funds raised in foreign currency

Strongly increasing financing by banks

771771699699

353353500500

1.1. Lower bond issuance due to deteriorating domestic Lower bond issuance due to deteriorating domestic demanddemand; higher issuance of discount T-bills and foreign currency debt instead

2. The originally planned amount of marketable foreign currency issuance is practically reached already in H1 (EUR 1.7 billion)

3. Project loans from international financing institutions drawn down in EUR

FINANCING IN H1 2008 – OUTTURN

Changes in the issuance calendar in 2008: • 6-week auction cycle;• the 6-month T-bill phased out;• higher volume of individual bond series.

2. FINANCING IN H2 2008

THE PLANNED GROSS ISSUANCE IN 2008

Substantially decreasing bond issuance

*Excluding debt assumptions and other foreign currency transactions

Higher amount of foreign currency and discount

T-bill issuance

THE PLANNED NET ISSUANCE IN 2008

Significantly lower net bond issuance* Excluding debt assumptions and other foreign currency transactions

Higher amount of net foreign currency and

discount T-bill issuance

DEBT TRANSACTIONS* IN H2 2008

Significant decrease in both gross and net issuance* Excluding debt assumptions and other foreign currency transactions

GROSS REDEMPTIONS IN H2 2008

Higher amount of discount T-bill redemption;lower amount of redemption in all other debt instruments

GROSS ISSUANCE IN H2 2008

Lower volume of issuance in all debt instruments, except discount T-bills

1. The effects of the sub-prime crisis are seen to

prevail at least until the end of 2008.2. The effects of the pension funds’ portfolio

restructuring are felt in H2 as well, but to a lower extent.

3. It is necessary to keep the issuance of domestic bonds cut back in H2 as well, in order to stabilise the market.

4. Discount T-bills and foreign currency issuance have a higher importance in financing in the year 2008.

SUMMARY – FINANCING IN H2 2008

5. Measures taken in order to reach long-term

strategic objectives:

SUMMARY – FINANCING IN H2 2008

• 6-week auction cycle introduced in case of govt. bonds;6-week auction cycle introduced in case of govt. bonds;• the 6-month T-bill has been phased out;the 6-month T-bill has been phased out;• higher volume of individual bond series.higher volume of individual bond series.

Thank you for your attention!

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