Fiscal Policy in Focus
The Changing Role of Public Debt in Economics and the Basic Principles of Hungarian Debt Management

György Barcza
CEO, Government Debt Management Agency, Budapest

Published in: Published in: Public Finance Quarterly 2015/4 (p. 433-446.)

SUMMARY: This paper presents the strategy of public debt management in Hungary, which is based on the core principles of reducing the debt ratio and its foreign-currency-denominated portion as well as developing a retail market for government securities. However, the limited availability of research makes assessing the role of public debt in macroeconomic theories uncertain. An overview of academic literature is therefore important as it allows tracking how the 2008 financial crisis raised the profile of public debt. Formerly, public debt was factored into few macroeconomic models. Crisis prediction literature came into existence in the wake of crises afflicting developing countries between 1982 and 2003, where indebtedness and public debt also played a role as a factor increasing the likelihood of financial crises. However, recent years have seen the opening of new fields of research into the impact of long-term sustainable debt and how public debt affects economic growth. Empirical experience suggests that Hungary’s public debt, whose rate is the highest in the region, may have contributed to slower convergence in the post–1990 period, even to the stagnation observed between 2004 and 2008, and then to the deepening of the 2009 crisis. Overcoming the problem of the Hungarian public debt has therefore become an important goal of post–2010 economic policy, a process underpinned by debt management principles and the selected tools.

KEYWORDS: macro-economics, macro-economy, public debt, debt management, indebtedness, Ricardian equivalence


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