Goals, activities and legal framework
The goals and the activities of ÁKK
The mission of ÁKK is to finance the government debt and the central government deficit at the lowest costs in the long run taking account of risks, at a high professional level and by using sophisticated methods.
Pursuant to the Act on Public Finances the minister responsible for public finances (currently the Minister for National Economy) is responsible for financing the budget deficit and debt management. The Minister carries out these tasks through ÁKK.
Thus, the main duties of ÁKK are to
· ensure the solvency of the central budget on the basis of the annual Budget Act and by taking into account the forecasts given by the State Treasury;
· ensure that the central government deficit and debt redemptions are financed, and that the government debt and the temporarily free cash-funds of the state are properly managed;
· the elaboration of the long-term financing strategy;
· the preparation of the annual financing plan of the central government in line with the strategy;
· the execution of the necessary funding operations in the domestic and the international financial markets (organisation of auctions and subscriptions, issuance of foreign exchange bonds and raising foreign exchange loans);
· effecting coupon payments and debt redemptions;
· organisation of the secondary market of government securities;
· dealing on own account on the secondary government securities market, concluding securities lending, repo and reverse repo transactions, concluding prompt, forward, hedge- and swap, and derivative transactions;
· the continuous development of the government securities market;
· the release of information on government debt financing and the government securities market in a timely and easily accessible way.
History of sovereign debt management in Hungary and ÁKK
History of the organisational and decision-making procedures of public debt management in Hungary
▪ Up to 1995 public debt management tasks – domestic and foreign currency securities issuance, loan raising etc. – were split among the different departments of the Ministry of Finance and the National Bank of Hungary (NBH). In May 1995 the ÁKK (Government Debt Management Agency) was founded within the Ministry of Finance with the objective of placing all debt management tasks into one organization.
▪ In 1996 the State Treasury was founded, and in April 1996 the ÁKK became a partly independent organization within the Treasury, assuming all tasks of domestic debt management at the same time and taking over the relevant back-office work from the NBH. From this time on the strategic decisions concerning debt management and financing were made by a special forum of top-level officials of the Ministry of Finance, the Treasury, the ÁKK and the NBH.
▪ Since 1 November 1996 retail investors can buy and sell government securities in the branch network of the Hungarian State Treasury. This activity is co-ordinated by the ÁKK.
▪ In 1997 ÁKK began the management of the foreign currency debt as well, and since 1999 ÁKK has been issuing foreign currency bonds and raising loans in the name of the Republic of Hungary (previously this was done by the NBH).
▪ In March 2001 the ÁKK within the Treasury ceased to exist as a budgetary institution and all its responsibilities were taken up by ÁKK Rt. (Government Debt Management Agency Ltd.) a corporation whose sole shareholder is the Minister of Finance. The board of directors and in certain cases the Minister of Finance are responsible for the main decisions about debt management.
▪ In 2003 ÁKK Rt. became responsible for financing the central government and also acquired the task of liquidity management of the State’s account balance. This activity was started in January 2004. Also from 2004 ÁKK Rt. directly makes derivative deals (IRS and CCIR swaps) in the international markets as part of foreign currency debt management.
▪ The name of the company became Government Debt Management Agency Pte. Ltd. (short form GDMA Pte. Ltd.)
from 28 August 2006.
▪ As of January 1, 2012, legal status and activities of GDMA Pte is governed by Act No. CXCIV of 2011 on Economic Stability of Hungary, and as of the same date, the Act No XXXVIII on Public Finances has been repealed.
The organisational and legal framework of government debt management
The laws governing public debt management in Hungary
The legal framework for government debt management involves several laws. The most important of these are the Act on the Economic Stability of Hungary (Act. No. CXCIV of 2011, hereinafter: Stability Act) , the Act on the Public Finances (Act CXCV of 2011, hereinafter: Public Finances Act) , Act on the Annual Central Budget of Hungary of the relevant year , and the Act on Capital Market (Act CXX of 2001). These laws –inter alia - provide the definition of debt, the rules for the creation and financing of debt and the scope of government agencies and organisations authorised and obliged to perform government debt management.
As the first step in the reform of public finances, the organisational framework of government debt management was renewed: from March 1, 2001, government debt management has been performed by an independent corporation, the Government Debt Management Agency Limited (ÁKK).
ÁKK is a single shareholder company registered by the Court of Registration. The company is solely owned by the Hungarian state, the ownership rights are exercised by the minister responsible for public finances (currently the Minister for National Economy, hereinafter: the Minister). The operation of ÁKK – unless otherwise provided by the Stability Act - is governed by the Act on Civil Code of Hungary (Act No. V of 2013). The company is controlled by the Board of Directors. Operations are supervised by the Supervisory Board and the company's auditor. In addition to these, internal management and control mechanisms, the process of debt management is regularly audited by the State Audit Office. Activities of the ÁKK are closely interrelated with operations of the Hungarian State Treasury. Operations of these organisations are professionally coordinated and controlled by the Minister.
Role of the minister responsible for public finances
According to the paragraph (2) of Section 5 of the Public Finances Act the Minister responsible for public finances ensures financing the deficit of the central budget. Through ÁKK, the Minister responsible for fulfilment of financing requirements specified in section 11-14 by the Stability Act .
As the subject of government debt management related civil law legal relationships, the state shall be represented by the minister responsible for public finances, who may exercise such incumbency right through ÁKK, or in writing may delegate such incumbency right to ÁKK pursuant to paragraph (2) of Section 14 of the Stability Act.
Role and duties of ÁKK
According to the paragraph (1) of Section 13 of the Stability Act, the Minister - through ÁKK -:
§ organizes the issuance of government securities, borrowing of loans and debt assumptions which shall be settled as debt of the central subsystem of public finances [...];
§ elaborates the annual and medium-term financing plan of the central government, develops the government debt financing strategy;
§ ensures the payment obligations burdening the central government debt;
§ ensures the solvency of the so-called state budget on the basis of the Act on the Annual Central Budget of Hungary and by taking into account the forecast rendered in point b) of paragraph (1) of Section 76 of Public Finances Act;
§ organises the secondary market of government securities;
§ executes dealing on own account on the secondary market of government securities, concludes security lending, repo and reverse repo transactions, concludes prompt, forward, hedge, swap and derivative transactions, and executes custodial and deposit management tasks;
§ analyses the tendencies of the government debt service and the government securities market;
§ participates in estimating the government debt, provides information on government debt of the central subsystem of public finances […] and on the tendencies in the government securities market;
§ expresses opinions on the terms and conditions of loans and bonds secured by individual government suretyship or guarantee,
§ performs loan and deposit operations
In addition to the duties above and pursuant to paragraph (4) of Section 13 of the Stability Act, ÁKK:
· (upon authorisation by law) may organize issuance of debt securities secured by government suretyship or government guarantee, or may fulfil advisory tasks related thereto;
· may participate in performing duties – advice related to business strategy also implied– related to borrowing loans and credits, or issuance of debt securities of business organization owned by the state and municipality through majority ownership;
· may participate in the management of the free cash funds of the National Deposit Insurance Fund and the Reorganization Fund, and performing duties – advice related to business strategy also implied - related to borrowing loans and credits, or issuance of debt securities of such Funds;
· may participate in managing cash fund of Investor Protection Fund.
Organisational structure of ÁKK
Organisational structure of ÁKK as it is specified in the Organisational and Functional Statute (organisation chart, set of tasks)
GDMA Pte. Ltd (ÁKK ) is a private company limited by shares, and its single shareholder is the Hungarian State. The shareholder’s rights are exercised by the minister responsible for public finances (currently the Minister for National Economy) according to the Stability Act. The company is governed by the Board of Directors.
The daily work is controlled and directed by the Chief Executive Officer – within the framework of laws and Dead of Foundation and in accordance with the decisions of the shareholder and the Board of Directors.
The main tasks of the departments which are controlled by the CEO are organizing the issuance of the government securities and borrowing of loans; organizing the secondary market of government securities; developing and monitoring the market of government securities; supervising sales channels (Front Office). The CEO also controls the departments responsible for marketing-communication, legal and corporate affairs, procurement and supply, IT systems and developments.
The main tasks of the departments which are controlled by the Deputy CEO responsible for budgetary and financing planning; supervising of the primary dealer system; risk management; making macroeconomic analysis (Middle Office). The Deputy CEO also controls the departments responsible for registration of the debt; settlement and accounting of debt transactions (Back Office).