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EC: Hungary does not meet any of Maastricht criteria. Hungary does not meet any of the Maastricht criteria for joining the euro-zone, the regular biennial Convergence Report of the EC concluded. We note that among the 9 assessed countries Hungary is the only one with such result (the country is the only one which does not meet the long-term interest rate criterion). While the EC conclusion brings little surprise as far as the specific criteria are concerned, we note that the Report stressed that Hungary continues to have some legal incompatibilities in the convergence process. More specifically the EC said that the amendments on the Act of the National Bank of Hungary , which were approved at end-2004, did not fully remove the problematic areas pointed out in the 2004 report. Furthermore, there is incompatibility in respect to the prohibition of monetary financing. Overall the commission concluded that there should not be change in Hungary ’s status as a “member state with derogation”

I emailed a friend who is a successful banker: “London is damp and grey. I am denuded of gossip. Send sustenance swiftly.” His response was immediate:

Investor enthusiasm towards China's stock market is likely to continue into next year, with banks and telecommunication companies favored amid tax and industry reform, Citigroup said.

GKI maintains projection for 4% GDP growth in 2006, ups end-year inflation forecast. Economic researcher GKI maintained its projection for 4% GDP growth in 2006, the latest forecast revealed. Nonetheless, the expectations for investments in the economy were revised downwards to 2% increase compared to 5% included in the October’s forecast. We recall that the CSO announced that investments decreased by 0.4% in Q1-Q3 (down 3.8% in Q3 alone) and despite the rather low base from Q4/2005 we remain sceptical about marked rebound. GKI projects that exports and imports would increase by 15% and 13% in the full-year, but the researcher revised slightly downwards the trade gap forecast from EUR 2.8bn to EUR 2.5bn. Another important change is the end-2006 inflation forecast, which now is expected at 6.5% opposed to the earlier 6.2% y/y.

External debt rises 10.9% y/y to USD 2.3bn at end-October. The external debt has risen by 10.9% y/y (and 0.4% m/m) to USD 2.3bn at end-October. This level corresponds to 36.8% of projected full-year GDP. When expressed in euro, the external debt has risen by 5% y/y and 0.1% m/m. In early December 2005, the government has sold a 10-year eurobond worth EUR 150mn used for buying out USD 221mn debt to the London Club in January 2006. Foreign reserves have grown by 1.8% in September, reaching EUR 1,370.1mn at the end of the month or 5.1 months of imports of goods and services. External debt, USDmn 31.10.2005 30.09.2006 31.10.2006 % y/y % m/m LONG-TERM DEBT Official creditors 1,244.7 1,325.6 1,336.5 7.4 0.8 Multilateral 1,036.2 1,118.8 1,124.3 8.5 0.5 Bilateral 208.6 206.8 212.2 1.7 2.6 Private Creditors 744.3 853.6 857.1 15.2 0.4 London Club 222.4 0.0 0.0 -100.0 - Eurobond 0.0 189.9 190.8 - 0.4 Others 522.0 663.7 666.4 27.7 0.4 TOTAL LONG-TERM DEBT 1,989.1 2,179.2 2,193.6 10.3 0.7 TOTAL SHORT-TERM DEBT 86.3 113.6 108.4 25.6 -4.6 TOTAL DEBT 2,075.4 2,292.7 2,302.0 10.9 0.4 Source: Central bank

Price of oil and gas firm INA’s shares rises by 28.4% in first day of trading. The price of the shares of oil and gas company INA soared to HRK 2,500 to close at HRK 2,170 on the very first day of their trading on the Zagreb Stock Exchange. The price at which the shares were sold in the IPO launched by the government was HRK 1,690, which means the price went up by 28.4%. The total turnover in INA shares amounted to HRK 188.4mn (EUR 25.6mn) on Friday and dealers estimated that the market capitalisation of the Zagreb bourse reached EUR 27bn. In London , where some third of the shares are traded via GDRs, the price closed at USD 390 (HRK 2,166). The government plans to offer a 20% stake in power utility HEP on the stock exchange next year, which is expected to boost market capitalisation further to EUR 30bn.

State budget deficit to reach CZK 89.6bn in 2006, up by 20.4% against plans. The state budget deficit in 2006 is to reach CZK 89.6bn (EUR 3.2bn) in 2006, representing 20.4% overshooting of the plans for CZK 74.4bn deficit, the finance ministry Financing and Debt Strategy for 2007 reads. The increased deficit for 2006 resulted from the additional borrowings worth CZK 18.8bn above the planned CZK 155.4bn, which are aimed at paying before maturity the government obligations to the Czech National Bank, among others. In 2007 the state budget deficit is to grow to CZK 91.3bn, in 2008 – to CZK 117.7bn, while in 2009 it is to slightly decline to CZK 110.1bn. In 2007 the total planned government’s gross borrowing requirement without the revolving of T-Bills will be about CZK 159.2bn, and will be used for covering the planned state budget gap, the planned maximum resources for the Czech Consolidation Agency worth CZK 13.3bn, the creation of reserves worth CZK 10bn for the eventual transfer of the positive difference between the income from insurance revenues and the expenditures on pension insurance for 2006 in the special pension insurance account, the refinancing of due, medium and long-term state bonds amounting to CZK 43bn and the repayment of loans from the European Investment Bank totalling CZK 1.8bn, among others. In 2007 the finance ministry will issue domestic medium- and long-term bonds worth CZK 72.8-152.8bn. In Q1/2007 the ministry will issue T-Bills worth CZK 52bn, while the T-Bonds issue will amount to CZK 39bn.

Eleven-month budget deficit deepens to CZK 30.92bn. Czech state budget reported CZK 30.92bn (EUR 1,105mn) deficit at end-November, thus deepening from the CZK 12.67bn deficit registered at end-October and CZK 200mn worth of surplus at end-Nov/2005, the finance ministry announced. Budget revenues reached CZK 821.23bn, translating to 6.7% y/y increase, of which tax revenues added 2.1% y/y to CZK 414.91bn. The expenditures expanded by 10.7% y/y, reaching CZK 852.15bn. In November alone, the state collected revenues worth CZK 72.47bn, up by 9.1% y/y, while the monthly expenditures amounted to CZK 90.72bn, growing by 11.4% y/y. Because of the tax cuts since the beginning of 2006, the government collected 5.3% y/y less from corporate income tax compared to the 12.2% y/y expected decline, which confirms the solid grounds of the Czech economy performance. Furthermore, individuals’ income tax revenues decreased by 3.6% y/y (2.6% y/y expected decline) to CZK 80.63bn. On the other hand, both VAT and excise duties revenues continued to post strong growth rates, thus suggesting some consumption acceleration. Despite the fact that the payments to pensioners grew by 8.6% y/y to CZK 248.74bn, the pension account reported CZK 51.12bn worth of surplus for the first time this year. In addition, the state budget execution was characterised by CZK 40.8bn worth of payments to the social and health insurance funds of which some CZK 5.5bn in extraordinary payments made to the General Health Insurance Company (VZP); in addition, the Czech Republic contributed CZK 24bn to the EU budget, while it received CZK 19.3bn, up by 50.1% y/y. We note that the approved for 2006 state budget gap at CZK 74.4bn reckons on CZK 884.4bn revenues and CZK 958.8bn expenditures, while the new government has proposed that the state budget ends at CZK 83.7bn deficit, which represents some 12.5% overshooting of plans, partially due to additional money reportedly needed for paying all pensioners their pensions at year-end. The latter seems meaningless in view of the significant surplus reported in the pension account at end-November.

Egypt’s industrial growth touches 7.2% in Jul-Sep. According to Minister of Trade and Industry Rasheed M. Rasheed Egypt ’s industrial growth rate increased from 5.1% in Q1 of FY 2005/06 (Jul-Jun) to 7.2% in Q1 of 2006/07. Rasheed attributed the improved industrial growth to the government’s industrial policy, expected further growth during the coming three months. New plants are to be inaugurated in various industrial cities.

FinMin buys back USD 160.2mn in RSTA, USD 428mn in PAR Brady bonds. The finance ministry, in November concluded the accounting for the early buy-out of part of the foreign Brady RSTA (Collateralised RSTA Bonds) and PAR (Collateralised Par Bonds). Within the confines of this operation, bonds worth a total of USD 588.2mn were bought back, including USD 160.2mn in RSTA bonds and USD 428mn in PAR bonds, the ministry announced in a communique on Friday. The ministry also reported that USD 288.4mn worth of RSTA bonds and USD 316.7mn worth of PAR bonds remain outstanding. As a result of the ministry's hitherto management of the State Treasury debt, the sum outstanding in Brady bonds, issued within the confines of the realisation of the agreement with the London Club, has fallen from around USD 8.0bn at the end of 1994, to around USD 0.6bn, the ministry said. ISB

Seasonally-adjusted PMI drops by 2.7pts m/m to 51.7pts in November. The seasonally-adjusted Purchasing Manager Index (PMI) dropped by 2.7pts m/m to 51.7pts in November, the index compiler Halpim announced. The outturn indicates 3.1pts deterioration in annual terms, but it is still roughly on par with the 51.6pts average for the month of November in the past 3 years. The main factors for the m/m decline in November were the new order and production volume sub-indices, which decreased by 4.6pts m/m and 4.2pts m/m, respectively. Still, we note that both of them remained in the above-50 territory (in the PMI indices reading below 50 indicates contraction, while above 50 signifies expansion). On the opposite side, the employment sub-index rose by 1.2ots m/m to 48.9pts thus showing contracting employment market for the second month in a row. Among the sub-indices calculated by Halpim, but not included in the PMI, we note the steep 9.2pts m/m drop in the purchasing price index, which still remained at relatively high 62.8pts in November.

According to an internal memo circulated last week.