December 22, 2016 / 8:09 AM / 3 years ago

UPDATE 1-Hungary's debt to fall, Budapest Bank could be sold in H1

(Adds more comments from minister)

BUDAPEST, Dec 22 (Reuters) - Hungary’s state debt will fall this year despite a slightly weaker-than-expected currency, the economy minister told business weekly Figyelo in an interview published on Thursday.

About a quarter of Hungary’s debt, which equated to 74.7 percent of gross domestic product (GDP) in 2015, is denominated in foreign currency and so impacted by the exchange rate. The forint traded at 310.30 per euro on Thursday morning.

The Hungarian government sees economic growth accelerating to over 4 percent in the next two years, it said earlier this week, partly as a result of recent stimulus measures announced as Prime Minister Viktor Orban eyes 2018 elections.

The government has signed an agreement with private sector employers on big hikes in the minimum wage for the next two years in return for cuts in payroll taxes and a reduction in corporate tax to a flat 9 percent.

Economy Minister Mihaly Varga told Figyelo the wage increases would boost consumption and lending in 2017-2018.

He also said the government could restart the manufacturing of weapons as part its plan to boost the country’s defence capabilities and defence industry.

“I think it is a realistic possibility that armoured vehicles could be assembled (in Hungary),” he said, adding a few companies would be capable of doing that. He did not name them.

Varga said Hungary was not planning a significant foreign currency bond issue but “the possibility cannot be excluded.” The government is expected to unveil its 2017 debt financing plan before the end of the year.

The minister also said several banks, both Hungarian and foreign, had signalled an interest in state-owned Budapest Bank but were unwilling to pay the price of around $700 million that the government paid for the bank.

“Several banks have signalled interest and we want to get at least as much for the bank as we paid for it,” Varga said.

He said Budapest Bank could still be sold in the first half of 2017.

Banking sources told Reuters in November that efforts by the government to sell Budapest Bank had stalled. (Reporting by Krisztina Than; Editing by Mark Potter)

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