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The next domino to fall in eastern Europe? Not Hungary
With the events of the last week investors are asking themselves whether Hungary is the next Iceland. The Hungarian forint lost over 6 per cent yesterday before recovering a bit of lost ground today, while its stock market has also been hit hard.
But Capital Economics say if you are trying to spot the next funding crisis in eastern Europe, Hungary could be the wrong target. Ukraine is more vulnerable, but the Baltics, the Balkans and Turkey all face strains in continuing to finance their current account deficits.
Unsurprisingly, those countries with the largest current account deficits also have the largest stock of
external debt, as the chart below shows.
But it is not so much the level as the structure of a country’s external debt that matters, Capital Economics says.
In particular, a large share of short-term debt (with a maturity of less than twelve months) increases a country’s immediate dependence on foreign capital. The ‘external financing requirement’ (the sum of its current account deficit plus its short-term external debt) is therefore the best measure of an economy’s overall dependence on foreign funding.
Hungary does have a reasonably high external financing requirement relative to GDP. This reflects a high external debt burden caused by the large current account deficits it ran in the early part of this decade. But other countries – notably the Baltics and Balkans – have much larger funding gaps as a share of GDP. And in plain dollar terms Turkey has a huge external financing requirement. By way of reference Thailand’s external financing requirement was 35% of GDP just before the Asia crisis in 1997.
Of course, this says nothing about the ability of countries to attract finance. Scandinavian banks will continue to play a critical role in funding deficits in the Baltics. Meanwhile, EU membership may help shore up investment in Central Europe.
In fact, once political risk is factored in, Ukraine could be most vulnerable to a balance of payments crisis, despite the fact that it’s overall external deficit is smaller.
Questo può essere uno dei motivi della debolezza di Unicredit ed Intesa oggi?
With the events of the last week investors are asking themselves whether Hungary is the next Iceland. The Hungarian forint lost over 6 per cent yesterday before recovering a bit of lost ground today, while its stock market has also been hit hard.
But Capital Economics say if you are trying to spot the next funding crisis in eastern Europe, Hungary could be the wrong target. Ukraine is more vulnerable, but the Baltics, the Balkans and Turkey all face strains in continuing to finance their current account deficits.
Unsurprisingly, those countries with the largest current account deficits also have the largest stock of
external debt, as the chart below shows.
But it is not so much the level as the structure of a country’s external debt that matters, Capital Economics says.
In particular, a large share of short-term debt (with a maturity of less than twelve months) increases a country’s immediate dependence on foreign capital. The ‘external financing requirement’ (the sum of its current account deficit plus its short-term external debt) is therefore the best measure of an economy’s overall dependence on foreign funding.
Hungary does have a reasonably high external financing requirement relative to GDP. This reflects a high external debt burden caused by the large current account deficits it ran in the early part of this decade. But other countries – notably the Baltics and Balkans – have much larger funding gaps as a share of GDP. And in plain dollar terms Turkey has a huge external financing requirement. By way of reference Thailand’s external financing requirement was 35% of GDP just before the Asia crisis in 1997.
Of course, this says nothing about the ability of countries to attract finance. Scandinavian banks will continue to play a critical role in funding deficits in the Baltics. Meanwhile, EU membership may help shore up investment in Central Europe.
In fact, once political risk is factored in, Ukraine could be most vulnerable to a balance of payments crisis, despite the fact that it’s overall external deficit is smaller.
Questo può essere uno dei motivi della debolezza di Unicredit ed Intesa oggi?
.... sempre dei mai.ali sono. 
