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60-583: Hungarian Development Bank (HDB)'s legal status, tasks, and scope of activities are defined in Act XX of 2001 (the MFB Act), its Memorandum of Association , and the strategy approved by the Hungarian Parliament and Government. Its core tasks include the provision of funding for growth under favorable terms and conditions to Hungarian enterprises, supporting the long-term development objectives of

120-543: A "debt brake" in Germany and Switzerland ; and the European Union 's Stability and Growth Pact agreement to maintain a general government gross debt of no more than 60% of GDP. The ability of government to issue debt has been central to state formation and to state building . Public debt has been linked to the rise of democracy , private financial markets , and modern economic growth . For example, in

180-460: A broker company, specialized banks in addition to being regional development companies. In 2000, strategic activities serving economic policy priorities were separated from the MFB Zrt. activities performed at its own business risk . That same year, six SME funding programs were launched and a funding product targeting family farms was introduced. Another turning point was Act XX of 2001 on

240-517: A company is an important corporate document in certain jurisdictions. It is often simply referred to as the memorandum . In the UK, it has to be filed with the Registrar of Companies during the process of incorporation of a company. It is the document that regulates the company's external affairs, and complements the articles of association which cover the company's internal constitution. It contains

300-477: A corporate/banking perspective. MFB Indicator is a large-scale biannual survey in which the Bank collects information from several hundreds of Hungarian business units using a questionnaire completed on a voluntary basis. The analysis based on the survey results is built around four indices: a macroeconomic index, a market index, a financing index and an investment index. The indices recorded since summer 2009 provide

360-502: A general rule, the GFSM says debt should be valued at market value , the value at which the asset could be exchanged for cash. However, the nominal value is useful for a debt-issuing government, as it is the amount that the debtor owes to the creditor. If market and nominal values are not available, face value (the undiscounted amount of principal to be repaid at maturity) is used. A country's general government debt-to-GDP ratio

420-477: A government would need to raise taxes or reduce spending, which would exacerbate the negative event. While government borrowing may be desirable at times, a "deficits bias" can arise when there is disagreement among groups in society over government spending. To counter deficit bias, many countries have adopted balanced budget rules or restrictions on government debt. Examples include the "debt anchor" in Sweden;

480-406: A government's balance sheet , but they are not included in government debt because they are not contractual obligations. Indeed, it is not uncommon for governments to change unilaterally the benefit structure of social security schemes, for example (e.g., by changing the circumstances under which the benefits become payable, or the amount of the benefit). In the U.S. and in many countries, there

540-423: A part of the latter. The memorandum no longer restricts the activities of a company. Since 1 October 2009, if a company's constitution contains any restrictions on the objects at all, those restrictions will form part of the articles of association. Historically, a company's memorandum of association contained an objects clause, which limited its capacity to act. When the first limited companies were incorporated,

600-546: A private limited company having a single member, and 100% of its shares are held by the Hungarian State represented by the minister responsible for the supervision of state-owned assets. The founder has been represented by the Minister for National Development since June 2010. Therefore, the minister is capable of exercising the rights of the owner; however, the act of managing, decision-making, and controlling organs of

660-601: A rising interest rate, which can crowd out private investment as governments compete with private firms for limited investment funds. Some evidence suggests growth rates are lower for countries with government debt greater than around 80 percent of GDP. A World Bank Group report that analyzed debt levels of 100 developed and developing countries from 1980 to 2008 found that debt-to-GDP ratios above 77% for developed countries (64% for developing countries) reduced future annual economic growth by 0.017 (0.02 for developing countries) percentage points for each percentage point of debt above

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720-472: A safe and liquid investment, it could be used as collateral for private loans. This created a complementarity between the development of public debt markets and private financial markets. Government borrowing to finance public goods, such as urban infrastructure, has been associated with modern economic growth . Written records point to public borrowing as long as two thousand years ago when Greek city-states such as Syracuse borrowed from their citizens. But

780-428: A set of objectives and a toolkit for the period until 2013. Commercial banking activities were terminated by selling Konzum Bank (2003/2004). The strategy developed in 2002 prescribed the structure and activities necessary for the performance of classic development banking activities and ensured adaptation to the principles of Hungarian economic policy. It promoted preparation for EU accession as well as compliance with

840-511: A thought provoking and detailed picture of the state and processes of the Hungarian economy. The MFB Macroeconomic Analyses provide a periodical overview of global economic processes to help the assessment of the constraints and opportunities faced by the Hungarian economy in the context of international trends. Key balance sheet data and results (HUF million) Memorandum of association The memorandum of association of

900-414: Is an indicator of its debt burden since GDP measures the value of goods and services produced by an economy during a period (usually a year). As well, debt measured as a percentage of GDP facilitates comparisons across countries of different size. The OECD views the general government debt-to-GDP ratio as a key indicator of the sustainability of government finance. An important reason governments borrow

960-477: Is basically a statement that the subscribers wish to form a company under the Companies Act 2006 , have agreed to become members and, in the case of a company that is to have a share capital, to take at least one share each. It is no longer required to state the name of the company, the type of company (such as public limited company or private company limited by shares), the location of its registered office,

1020-463: Is because the beneficiaries of the government's expenditure on goods and services when the debt is created typically differ from the individuals responsible for repaying the debt in the future. An alternative view of government debt, sometimes called the Ricardian equivalence proposition, is that government debt has no impact on the economy if individuals are altruistic and internalize the impact of

1080-464: Is issued in a country's own fiat money , it is sometimes considered risk free because the debt and interest can be repaid by money creation . However, not all governments issue their own currency. Examples include sub-national governments, like municipal, provincial, and state governments; and countries in the eurozone . In the Greek government-debt crisis , one proposed solution was for Greece to leave

1140-432: Is no money earmarked for future social insurance payments — the system is called a pay-as-you-go scheme. According to the 2018 annual reports from the trustees for the U.S. Social Security and Medicare trust funds, Medicare is facing a $ 37 trillion unfunded liability over the next 75 years, and Social Security is facing a $ 13 trillion unfunded liability over the same time frame. Neither of these amounts are included in

1200-408: Is to act as an economic "shock absorber". For example, deficit financing can be used to maintain government services during a recession when tax revenues fall and expenses rise for say unemployment benefits. Government debt created to cover costs from major shock events can be particularly beneficial. Such events would include In the absence of debt financing, when revenues decline during a downturn,

1260-506: The Latin American debt crisis of the early 1980s, and Argentina's debt crisis in 2001 . To help avoid a crisis, governments may want to maintain a "fiscal breathing space". Historical experience shows that room to double the level of government debt when needed is an approximate guide. Government debt is built up by borrowing when expenditure exceeds revenue, so government debt generally creates an intergenerational transfer. This

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1320-495: The Russo-Ukrainian War , driven by its countercyclical policy. At the end of 2021, MFB Zrt.'s capital was increased by HUF 45 billion, with an additional HUF 70 billion added in 2022 following a decision by the Minister of Economic Development. The current total share capital stands at HUF 519.9 billion. Act XX of 2001, as successively amended, states that MFB is a specialized credit institution operating as

1380-584: The United Kingdom , Ireland , Canada , Nigeria , Nepal, Bangladesh , Pakistan, Afghanistan, Sri Lanka, and Tanzania and is also used in many of the common law jurisdictions of the Commonwealth . It is still a requirement to file a memorandum of association to incorporate a new company, but it contains less information than was required before 1 October 2010. The Companies (Registration) Regulation 2008 included pro-forma Memorandum. It

1440-405: The global financial crisis overwrote plans in 2008. Borrowing to invest practically stopped in the Hungarian financial market, and commercial banks were virtually unable to access funds. Corporate and household lending decelerated and became expensive, and subsequently sovereign debt management reached a critical state, which was followed by a rapid and significant depreciation of the forint . In

1500-491: The 17th and 18th centuries England established a parliament that included creditors, as part of a larger coalition, whose authorization had to be secured for the country to borrow or raise taxes. This institution improved England's ability to borrow because lenders were more willing to hold the debt of a state with democratic institutions that would support debt repayment, versus a state where the monarch could not be compelled to repay debt. As public debt came to be recognized as

1560-486: The 1920s Weimar Germany suffered from hyperinflation when the government used money creation to pay off the national debt following World War I . While U.S. Treasury bonds denominated in U.S. dollars may be considered risk-free to an American purchaser, a foreign investor bears the risk of a fall in the value of the U.S. dollar relative to their home currency. A government can issue debt in foreign currency to eliminate exchange rate risk for foreign lenders, but that means

1620-566: The 1970s , a bailout came from New York State and the United States national government. U.S. state and local government debt is substantial — in 2016 their debt amounted to $ 3 trillion, plus another $ 5 trillion in unfunded liabilities. A country that issues its own currency may be at low risk of default in local currency, but if a central bank provides finance by buying government bonds (sometimes referred to as debt monetization ), this can lead to price inflation . In an extreme case, in

1680-417: The Bank are supervised by the board of directors and the supervisory board instead. The members of the board of directors are appointed – for a period of five years – and may be removed by the person exercising the rights of the owner. The board of directors elects its own chair from among its own members. The controlling organ of the bank is the supervisory board, whose chair is appointed and may be removed by

1740-666: The EU programming period from 2021 to 2027, businesses and retail customers can access financing through EU-funded loan programs via the MFB Pont Plus network of financial intermediaries. Dr. Levente Sipos-Tompa was appointed CEO of the Hungarian Development Bank, effective April 1, 2019. The bank's balance sheet and loan portfolio grew significantly during the COVID-19 pandemic and the energy crisis following

1800-501: The Hungarian Development Bank, which has been the legislative framework for the operation of the Bank ever since. The strategy developed in 2002 and adopted by the Government in 2003 made a difference by positioning the bank as a classic development bank . This strategy set the main directions of operation until 2008, which were subsequently adjusted in the light of the changes in international and domestic conditions in 2007, outlining

1860-407: The Hungarian State, the Government entrusted MFB with two tasks: the management of public assets worth some HUF 8 trillion (US$ 40 billion) and performing due diligence on its own portfolio while continuing the performance of development banking activities. After completing the due diligence process conducted from a financial, legal and IT perspective in respect of the assets entrusted to it, MFB put

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1920-543: The Hungarian State. MFB Zrt. is an active bond issuer on the Budapest Stock Exchange, including the issurance of green and social bonds. The MFB Act provides an itemized list of the companies that belong to the MFB Banking Group. A company may be a member of the MFB Banking Group on either of two legal bases. One group comprises those business organizations in which MFB exercises the rights of

1980-671: The United Kingdom (£628,978,782); on a per-capita basis, the highest-debt countries were New Zealand (£58 12s. per person), the Australian colonies (£52 13s.) and Portugal (£35). In 2018, global government debt reached the equivalent of $ 66 trillion, or about 80% of global GDP, and by 2020, global government debt reached $ 87US trillion, or 99% of global GDP. The COVID-19 pandemic caused public debt to soar in 2020, particularly in advanced economies that put in place sweeping fiscal measures. Government debt accumulation may lead to

2040-413: The borrowing government then bears the exchange rate risk. Also, by issuing debt in foreign currency, a country cannot erode the value of the debt by means of inflation. Almost 70% of all debt in a sample of developing countries from 1979 through 2006 was denominated in U.S. dollars. Most governments have contingent liabilities , which are obligations that do not arise unless a particular event occurs in

2100-468: The company on track towards responsible management and cleaned up its own portfolio. As a result of these efforts, MFB closed the first two quarters with a positive balance in 2013. The financial institution played a key role in facilitating access to of EU financial instruments by establishing a network of MFB Points in partnership with commercial banks. By the end of 2017, this network was accessible to businesses and retail customers at 642 locations. During

2160-458: The debt on future generations. According to this proposition, while the quantity of government purchases affects the economy, debt financing will have the same impact as tax financing because with debt financing individuals will anticipate the future taxes needed to repay the debt, and so increase their saving and bequests by the amount of government debt. Such higher individual saving means, for example, that private consumption falls one-for-one with

2220-641: The distribution of EU funds through repayable financial instruments, such as loans. In the 2021-2027 period, both businesses and retail customers can access EU-funded loan programs through the MFB Pont Plus network, a system of financial intermediaries. For corporate clients, the MFB Pont Plus network comprises 156 branches, while retail clients have access to 266 branches, all of which are designated branches of commercial banks. MFB Zrt. independently raises funds in both domestic and international money and capital markets. These funds are used to finance development loans, programs, and projects, with repayment guaranteed by

2280-465: The end of the Napoleonic Wars , British government debt reached a peak of more than 200% of GDP, nearly 887 million pounds sterling. The debt was paid off over 90 years by running primary budget surpluses (that is, revenues were greater than spending after payment of interest). In 1900, the country with the most total debt was France (£1,086,215,525), followed by Russia (£656,000,000) then

2340-455: The eurozone and go back to issuing the drachma (although this would have addressed only future debt issuance, leaving substantial existing debt denominated in what would then be a foreign currency). Debt of a sub-national government is generally viewed as less risky for a lender if it is explicitly or implicitly guaranteed by a regional or national level of government. When New York City declined into what would have been bankrupt status during

2400-487: The former is that the members/employees of the board of directors and the supervisory board of MFB Zrt. shall not hold office in political parties or undertake any public role in the name or interest of any political party, except for participation, as a candidate, in parliamentary or local elections. The Hungarian Development Bank (MFB) launched the MFB Points network during the 2014-2020 programming period to facilitate

2460-742: The founding of the Bank of England in 1694 revolutionised public finance and put an end to defaults such as the Great Stop of the Exchequer of 1672, when Charles II had suspended payments on his bills. From then on, the British Government would never fail to repay its creditors. In the following centuries, other countries in Europe and later around the world adopted similar financial institutions to manage their government debt. In 1815, at

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2520-464: The fundamental conditions under which the company is allowed to operate. Until recent it had to include the "object clause" which made the shareholders, creditors and those dealing with the company know what is its permitted range of operation, although this was usually drafted very broadly. It also shows the company's initial capital. It is one of the documents required to incorporate a company in India ,

2580-541: The future. An example of an explicit contingent liability is a public sector loan guarantee, where the government is required to make payments only if the debtor defaults. Examples of implicit contingent liabilities include ensuring the payment of future social security pension benefits, covering the obligations of subnational governments in the event of a default, and spending for natural disaster relief. Explicit contingent liabilities and net implicit social security obligations should be included as memorandum items to

2640-410: The general government sector is the total liabilities that are debt instruments. An alternative debt measure is net debt , which is gross debt minus financial assets in the form of debt instruments. Net debt estimates are not always available since some government assets may be difficult to value, such as loans made at concessional rates. Debt can be measured at market value or nominal value . As

2700-420: The government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits . A deficit occurs when a government's expenditures exceed revenues. Government debt may be owed to domestic residents, as well as to foreign residents. If owed to foreign residents, that quantity is included in the country's external debt . In 2020, the value of government debt worldwide

2760-422: The international requirements to be met by the bank. This strategy provided the basis for the organization of a single banking group – a system with a "cleaned up" profile – around MFB in 2006. In order to clearly identify the structure and functions within the banking group, MFB and its owner, the Hungarian State, jointly decided on the improvement of the strategy and its extension to the period 2007–2013. However,

2820-686: The level of government responsible for programs (for example, health care) differs across countries and the general government comprises central, state, provincial, regional, local governments, and social security funds. The debt of public corporations (such as post offices that provide goods or services on a market basis) is not included in general government debt, following the International Monetary Fund 's Government Finance Statistics Manual 2014 ( GFSM ), which describes recommended methodologies for compiling debt statistics to ensure international comparability. The gross debt of

2880-528: The loan portfolio nearing HUF 1,500 billion. The legal predecessor of HDB was the Hungarian Investment and Development Co. (Magyar Befektetési és Fejlesztési Rt.) which was formed on 27 November 1991. MBFB was established by three state-owned institutions, Hungarian Asset Management Co. (Állami Vagyonkezelő Rt.), Hungarian Asset Management Agency (Állami Vagyonügynökség) and Hungarian Development Institute Co. (Állami Fejlesztési Intézet Rt.) MBFB

2940-489: The objects clause had to be widely drafted so as not to restrict the board of directors in their day to day trading. In the Companies Act 1989, the term "General Commercial Company" was introduced which meant that companies could undertake "any lawful or legal trade or business". Government debt A country's gross government debt (also called public debt or sovereign debt ) is the financial liabilities of

3000-546: The objects of the company, and its authorized share capital. Instead, these details appear solely in the Articles of Association . Companies incorporated prior to 1 October 2009 are not required to amend their memorandum, and for these companies the provisions which would have appeared in the memorandum but are now required to appear in the Articles, such as the objects clause and details of the share capital, are deemed to form

3060-455: The owner on behalf of the Hungarian State, and the other comprises those in which MFB may hold ownership interest. MFB Periscope is a monthly economic report published by the Hungarian Development Bank. In addition to interpreting current real economic and money market trends, it focuses on the Hungarian economy and describes recent developments in its wider environment, essentially from

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3120-474: The person exercising the rights of the owner. The work organization is headed by the CEO, who is an employee of MFB Zrt. The auditor of MFB Zrt. is appointed for a definite period of time by the person exercising the rights of the owner. The MFB Act also defines the tasks and financial service provision activities of the bank. It also provides rules regarding conflict of interest and confidentiality . An example of

3180-669: The rise in government debt, so the interest rate would not rise and private investment is not crowded out. Historically, there have been many cases where governments have defaulted on their debts, including Spain in the 16th and 17th centuries, which nullified its government debt several times; the Confederate States of America , whose debt was not repaid after the American Civil War ; and revolutionary Russia after 1917, which refused to accept responsibility for Imperial Russia's foreign debt. If government debt

3240-576: The rise of democracy , private financial markets , and modern economic growth . Government debt is typically measured as the gross debt of the general government sector that is in the form of liabilities that are debt instruments. A debt instrument is a financial claim that requires payment of interest and/or principal by the debtor to the creditor in the future. Examples include debt securities (such as bonds and bills), loans, and government employee pension obligations. International comparisons usually focus on general government debt because

3300-579: The same year, MBFB took over the Bank Centre (Pénzintézeti Központ) from the Ministry of Finance and became a shareholder in Investbank. In 1997, the bank became the MFB Zrt. It played an active role in the consolidation and improvement of Hungarian financial institutions in the second half of the 1990s. Between 1996 and 1998, MFB Zrt. grew into a complex banking group having among its members

3360-399: The situation, MFB's role appreciated in the field of lending to both companies and local authorities showing a highly increased demand for short-term working capital loans as well as for long-term funding. By 2009, MFB had ultimately become a key crisis management institution. Amid the deepening crisis, MFB's role fundamentally changed in 2010. In parallel with the in-depth transformation of

3420-437: The state, and obtaining funds from money markets for these purposes. MFB also provides retail financial products, primarily for energy-related purposes, and plays a key role in facilitating access to European Union funds. MFB has been receiving individual international credit ratings from Moody's Investors Service since 19 May 2003. In 2023, the financial institution's total balance sheet exceeded HUF 3,500 billion, with

3480-552: The threshold. Excessive debt levels may make governments more vulnerable to a debt crisis , where a country is unable to make payments on its debt, and it cannot borrow more. Crises can be costly, particularly if a debt crisis is combined with a financial/banking crisis which leads to economy-wide deleveraging . As firms sell assets to pay off debt, asset prices fall which risks an even greater fall in incomes, further depressing tax revenue and requiring governments to drastically cut government services. Examples of debt crises include

3540-568: Was $ 87.4 US trillion, or 99% measured as a share of gross domestic product (GDP). Government debt accounted for almost 40% of all debt (which includes corporate and household debt), the highest share since the 1960s. The rise in government debt since 2007 is largely attributable to stimulus measures during the Great Recession , and the COVID-19 recession . The ability of government to issue debt has been central to state formation and to state building . Public debt has been linked to

3600-542: Was not a bank at the time of its establishment. On 1 July 1993, it was transformed into an investment bank , from which time it was called Hungarian Investment and Development Bank Co. (Magyar Befektetési és Fejlesztési Bank Rt.). MBFB was involved in the provision of Japanese , German and EU loans in Hungary from 1995, and also acquired interest in regional development companies and subsequently in Rákóczi Bank. In

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