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IMF Thinks Hungary Should Curb Its ‘Super Bond’ Scheme

Péter Cseresnyés 2019.12.10.

In its latest report on Hungary, the International Monetary Fund (IMF) analyzed the Hungarian Government Security Plus Scheme (MÁP+), often called the “super bond,” in detail. The publication states, although the goals set by the bond are reasonable, it may be possible to achieve them more cost-effectively, adding that it is also generally the wealthy Hungarians who can profit from it. Therefore, it proposes the revision of the scheme. Responding to the report, the CEO of the Hungarian Government Debt Management Agency (ÁKK) said that key points of the IMF report on MÁP+ were methodologically debatable.

According to the report, the super bond has “reasonable objectives,” although some of them are mainly driven by macroeconomic policies such as the increase of the savings rate of households, and the reduction of external indebtedness. About the latter, IMF notes as Hungary’s net international debt position is projected to become positive in late 2021, the cost of external financing might be less in the future than currently perceived.


The strategic goal of the Hungarian government is to be able to finance a significant part of the public debt from domestic household savings. This way, if an international financial crisis struck the economy, the Hungarian people would not withdraw money from bonds, as international financial investors did in 2008. This method is clearly more expensive, but financing the public debt is also much safer, thus the government is willing to pay billions of forints for the extra interest.

The question is how these goals can be achieved at a lower cost, given there are cheaper funding sources available, the publication highlights.

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IMF thinks that while it is too early to draw a conclusion about the security and its effects, the initial demand has undeniably exceeded expectations. At the end of September, ÁKK issued around HUF 2100 billion MÁP+, which is more than 4% of the GDP.

Additionally, some market observers asked by IMF believe that the same demand for MÁP+ could have been achieved by a lower yield, at around 3%. Based on this, the excess pricing solely due to the MÁP+ issued during Q3 2019 cost the budget an extra HUF 41 billion. Compared to the yield of the 5-year wholesale benchmark bond, the additional expense is even higher.

The report also mentions arbitrage as a potential risk. While the authorities are trying to contain all arbitrage opportunities, some dealers previously promoted MÁP + to some foreign nationals (since then, ÁKK has been encouraging these dealers to focus on domestic residents). Nonetheless, it is still possible for foreigners with good credit ratings to borrow abroad in Euros, convert to HUF, buy MÁP+, and swap the return in HUF back into Euros, and still make a profit.

Another point of consideration is that while MÁP+ has been designed to be accessible to all individuals, the wealthier individuals are likely to benefit the most.

The report also highlights that the ÁKK should respond to the changing market conditions mentioning ÁKK’s recent decisions to lower the interest rate on some retail bonds, as well as to cut the distribution fees to banks beginning in 2020 as good examples.

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In response to the report, ÁKK CEO Zoltán Kurali told economic daily Világgazdaság that the conclusion of the IMF report was incorrect and the methodology used by the organization was debatable.

According to Kurali, the conditions offered by MÁP + was designed “to offer a simple and beneficial investment for Hungarian families. However, the IMF seems to have ignored these aspects when creating its proposals.”

The leader of the ÁKK highlighted that it is difficult to estimate what the residential demand would be at an IMF suggested 3% annual yield, but he thinks this particular government security wouldn’t be nearly as popular.

Thus, a comparison with an assumed static institutional yield level is not professionally viable, he added.

Since it is important for the Hungarian economic policy to be indebted towards domestic households and not towards international organizations, there is no plan on changing the conditions of the Hungarian Government Securities Plus scheme.