HUNGARY - Hungary's government has approved using the country's pension fund assets to cut public debt, with prime minister Viktor Orban saying state debt would fall to 77% of GDP from the current 81% thanks to this option.

The news follows the transfer of second-pillar assets to the state pension plan.

Earlier this month, 18 Hungarian second-pillar funds transferred a total of €11.8bn in assets to the Pension Reform and Debt Reduction Fund recently established by the governmental debt management agency AKK.

The funds had to transfer the assets to the state by 12 June.

According to figures published by the pension fund association, Stabilitas Penztarszovetseg, as at 31 March 2011, total assets in the second-pillar pension funds recorded a total of HUF3.2trn (€12bn).

However, shortly after this transfer, the International Monetary Fund (IMF) said "pension sustainability needs to be reassessed" and warned the Hungarian government about "taking comfort in the improvement of the first pillar's short-term cash position". It reiterated concerns about the use of some returned pension assets for current spending.

Last year, Orban gave the holders of mandatory private pension funds an ultimatum. Hungarians had to choose whether they wanted to stay in the second pillar or return to the state pension system.

In total, more than 95% of the voters opted for the second option.

Yesterday, the Hungarian prime minister said the government would take further steps to reduce the public debt.

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