Hungary 18-K/A Annual report (foreign governments) (amended)

EXHIBIT 99.D.1

RECENT DEVELOPMENTS

The information included in this section supplements the information about the Republic contained in the Republic’s Annual Report. To the extent the information in this section is inconsistent with the information contained in the Annual Report, the information in this section supersedes and replaces such information. Initially capitalized terms not defined in this section have the meanings ascribed to them in the Annual Report.

Selected Hungarian Economic Indicators

The following tables set out certain macroeconomic statistics regarding the Republic for the periods indicated:

Selected Macroeconomic Statistics(1)

	December 31,
	2006			2007			2008			2009			2010(1)
Economic Data(2)
Nominal GDP (HUF billions)		23,730.0			25,321.5			26,753.9			26,054.3			27,119.8
Real GDP (growth in %)		3.6			0.8			0.8			(6.7	)		1.2
Per Capita GDP (HUF millions)(3)		2.4			2.5			2.7			2.6			2.7
Real exports (growth in %)		18.6			16.2			5.7			(9.6	)		14.1
Real imports (growth in %)		14.8			13.3			5.8			(14.6	)		12.0
Rate of unemployment (as of the period end(%))		7.5			7.7			8.0			10.5			10.8
Consumer prices (growth in %)		3.9			8.0			6.1			4.2			4.9
Producer prices (growth in %)		6.5			0.2			5.3			4.9			4.5
State Budget; Public and External Debt(4)
State budget surplus (HUF billions)(5)		(2,199.0	)		(1,361.4	)		(893.7	)		(992.6	)		(869.8	)
as a % of GDP		(9.3	)		(5.4	)		(3.3	)		(3.8	)		(3.2	)
Total revenues (HUF billions)(5)		10,484.4			11,636.9			12,572.7			12,096.7			13,174.0
as a % of GDP		44.2			46.0			47.0			46.4			48.6
Public debt (HUF billions), unconsolidated		14,705.7			15,585.5			18,103.9			18,964.9			20,041.0
as a % of GDP		62.0			61.6			67.7			72.8			73.9
External public debt (HUF billions)		4,124.4			4,472.6			6,774.8			8,468.5			8,842.8
as a % of GDP		17.4			17.7			25.3			32.5			32.6
Balance of Payments Data(6)
Current Account (EUR billions)		(6.8	)		(7.0	)		(7.8	)		(0.4	)		n/a
as a % of GDP		(7.6	)		(6.9	)		(7.4	)		(0.5	)		n/a
Exports (EUR billions)(7)		69.2			80.9			86.6			71.7			n/a
Imports (EUR billions)(7)		70.5			80.0			86.2			66.9			n/a
NBH’s foreign exchange reserves (EUR billions)		16.4			16.4			24.0			30.7			33.7

Sources: Hungarian Central Statistical Office (“CSO”), National Bank of Hungary (“NBH”), Ministry for National Economy (“MNE”)

Notes:

(1)	Preliminary data.
(2)	Derived from data published by the CSO.
(3)	Calculated according to population as of the beginning of the corresponding period.
(4)	Derived from the government budget as published by the Ministry for National Economy.
(5)	Non-consolidated data excluding local governments.
(6)	Derived from data published by the NBH.
(7)	Including goods and services.

General Recent Developments

On December 30, 2010, the annual budget for the Republic (the “Budget”), as set forth in Act CLXIX of 2010 (a Magyar Köztársaság 2011. évi költségvetéséröl szóló 2010. évi CLXIX. törvény) was published in the Official Gazette (Magyar Közlöny). The Budget includes temporary measures aimed at narrowing the budget deficit to under 3% of GDP, which is in line with the Maastrict criteria. The deficit target for 2011 is 2.9% of GDP, which includes an expected HUF 529 billion one-off item from the transfer of assets from the private pillar to the state pillar as part of Hungary’s pension reform. Since one-off revenues related to the pension reform, the surtax on financial institutions adopted on July 22, 2010 and the surtax on the retail, telecommunications and energy sectors have been larger than planned as of the date of this Prospectus Supplement, the Government projects that the budget surplus for 2011 may exceed 4% due to one-off items; moreover, the Government expects that the Republic will reach the deficit target without the extra one-off items.

On January 31, 2011, the Executive Board of the International Monetary Fund (the “IMF”) concluded the Article IV consultation and Proposal for Post-Program Monitoring with the Republic. The IMF commended the ongoing recovery of the Hungarian economy and welcomed the improvement in capital and liquidity financial indicators. The IMF noted that the main challenge will be to establish a sustainable fiscal stance over the medium term and pointed toward a need for durable expenditure rationalization in the near term, notably better targeting of social benefits and restructuring of state-owned transportation companies. Hungary will begin repaying the loans received in 2008 from IMF in the first quarter of 2012 and is scheduled to complete repayment in the third quarter of 2014.

On March 11, 2011, the Government presented to Parliament its draft of a new Constitution for the Republic. As proposed, the new Constitution, among other things, prescribes a debt cap that would prohibit (save for certain exceptional circumstances) the Republic from issuing securities that would boost its debt to more than 50% of the prior year’s GDP. If passed, the new Constitution would go into effect in 2012.

On January 1, 2011, Act CLXXXV of 2010 on Media Services and Mass Media and Act CIV of 2010 of Freedom of the Press and the Fundamental Rules on Media Content (collectively, the “Media Laws”) went into effect. The Media Laws established the Media Council, which is comprised of members elected by the Parliament by a two-thirds majority for a term of nine years. The Media Laws provide rules to ensure the members are independent, and the members are expected to have no ties, either formal or informal, with any political party or with the Government. The Media Laws cover a variety of media content ranging from traditional print and radio to television and internet newspapers. Under the Media Laws, information presented in media must be balanced, media is prohibited from defaming or inciting hatred or social exclusion against any community, and the Media Council may impose fines for violating “public interest, public morals or order.” Additionally, the Media Laws establish legal protection for journalistic sources; they define rules for the protection of the professional conduct of journalists against undue interference from media owners or advertisers and create immunity for journalists committing minor offences, if unavoidable, in the course of their investigations for the benefit of the public.

1

According to successful negotiation between the European Commission and the Government, an amendment to the Media Laws was submitted to the Parliament to ensure that they comply with the relevant EU directive and to adopt the negotiated refinements. The amendment clarifies, among other things, the use of the term of “offenses to minority or majority groups”, modifies the scope of the Media Laws in connection with non-Hungarian media content providers, abolishes the prior registration requirement of on-demand audiovisual services and abolishes the requirement of “providing balanced information” in the case of on-demand audiovisual services. On March 7, 2011, the Parliament passed the amendment.

POLITICAL SYSTEM

The Republic held Parliamentary elections in April 2010. Nominees of the following parties gained mandates: the Hungarian Socialist Party (“HSP”), the electoral partnership comprised of Fidesz-Hungarian Civic Union (“Fidesz”) and the Christian Democrats People’s Party (“CDPP”), Jobbik—Movement for a Better Hungary (“Jobbik”) and LMP—Politics Can Be Different (“LMP”). Fidesz and CDPP formed an alliance before the elections and submitted a joint list of nominees. The following table sets forth the Composition of the Parliament as of March 17, 2011:

			Share of
	Number of		Seats
	Seats		(%)
Jobbik		46		11.95
LMP		15		3.9
Fidesz(1)		225		58.44
HSP		58		15.06
CDPP		37		9.61
Independent Representatives		4		1.04
Total		385		100.00

Source: Parliament of Hungary

Note:

(1) Mr. Sándor Arnóth has lost his mandate due to death on March 16, 2011.

On January 1, 2011, Hungary took over the Presidency of the Council of the European Union for the first half of 2011.

2

RECENT ECONOMIC PERFORMANCE

The following table shows the sector composition of GDP in each of the periods indicated:

	December 31,
	2006		2007		2008		2009		2010
	(percentage of contribution)
Agriculture, forestry and fishing		3.5		3.4		3.6		2.8		2.9
Mining and quarrying, manufacturing and electricity		22.0		21.6		21.3		21.2		22.5
Of which:
Manufacturing		19.7		19.0		18.5		18.1		19.4
Construction		4.1		3.9		3.8		3.7		3.3
Services, total		57.0		56.7		56.7		57.0		55.5
Of which:
Trade, repair, hotels and restaurants		10.8		11.3		11.5		11.2		10.9
Transport, storage and communication		6.6		7.0		6.6		6.7		6.4
Financial intermediation and real estate activities		19.7		19.2		19.5		19.9		19.6
Public administration, education, health and social services		16.0		15.2		15.2		15.3		14.6
Other community, social and personal service activities		3.8		4.0		3.8		3.9		4.0
Taxes less subsidies on products		13.5		14.4		14.7		15.3		15.7
GDP, total		100.0		100.0		100.0		100.0		100.0

Source: CSO

3

The following table indicates the gross production indices by industry sector for the periods indicated:

	December 31,
	2006		2007		2008		2009		2010
	(volume indices, the volume of
	the previous year = 100)
Agriculture, forestry and fishing		93.4		78.3		154.5		84.8		84.6
Mining and quarrying, manufacturing and electricity		106.1		106.0		99.9		86.9		108.9
Of which:
Manufacturing		106.9		106.9		99.4		85.7		110.6
Construction		100.7		93.4		89.8		93.7		91.7
Services, total		103.9		100.2		99.2		95.7		100.1
Of which:
Trade, repair, hotels and restaurants		108.2		104.6		97.8		89.2		99.0
Transport, storage and communication		105.8		105.5		96.3		94.6		102.7
Financial intermediation and real estate activities		104.5		98.6		101.7		97.8		100.1
Public administration, education, health and social services		100.3		96.2		99.6		97.6		99.0
Other community, social and personal service activities		101.7		103.3		94.7		98.5		102.5
Taxes less subsidies on products		—		—		—		—		—
GDP, total		103.6		100.8		100.8		93.3		101.2

Source: CSO

Note:

(1) Data unadjusted for calendar day effect.

In 2010, GDP increased by 1.2%, compared to a decrease of 6.7% in 2009. Value added by the agricultural industry fell further as a result of bad weather conditions, with the sector contracting by 15.4%. As external demand strengthened significantly, value added by the industry sector (i.e., manufacturing, mining and quarrying, and electricity) increased by 8.9%. The low base also contributed to the relatively high growth rate. Construction contracted by 8.3% as many public infrastructure projects have ended and home construction continued to struggle due to continuing tightened credit constraints. The value added by the service sector increased slightly by 0.1%. The unemployment rate and consumer sentiment did not further deteriorate significantly and, as a result, domestic demand stabilized.

Domestic use diminished slightly by 1.1% in 2010. Consumption decreased by 2.0%. Gross fixed capital formation contracted by 5.6%, stabilizing as a result of some improvement in investor sentiment. Gross capital formation increased by 2.1% due to a positive change in inventories. Net exports turned the contraction of domestic use into a growth of total GDP. Exports grew by 14.1% partly as a result of the improving state of the economy in Western Europe, and partly as a result of the low base. The dynamics of imports lagged behind that of exports due to weak investment sentiment and stagnating consumption, as import demand from investment and consumption still faltered. A 12.0% growth in imports was mainly the result of the increasing import content of exports.

In 2010, the year-on-year change in December and the yearly average change in the CPI were 4.7% and 4.9%, respectively, compared to 5.6% and 4.2%, respectively, in 2009. In 2010, the year-on-year change in December and the yearly average change in the PPI were 8.1% and 4.5%, respectively, compared to 1.3% and 4.9%, respectively, in 2009.

4

The yearly average 12-month inflation rate for 2010 was 4.9%. In the latest Quarterly Report on inflation, published on December 1, 2010 (the “Latest Inflation Report”), the NBH estimated that the average annual inflation for 2011 and 2012 would be 4.0% and 3.3%, respectively, which is higher than the 3% long-term inflation target rate. The inflation rate increased to 4.7% in December 2010, mainly as a result of increasing energy and food prices. In February 2011, the inflation rate decreased to 4.1%.

The following table sets forth the average inflation rate for the periods indicated:

12-Month Inflation Rate—Consumer Price Index
(percent)

2007 Q1	8.6
Q2	8.6
Q3	7.7
Q4	7.1
2008Q1	6.9
Q2	6.8
Q3	6.3
Q4	4.3
2009 Q1	3.0
Q2	3.6
Q3	5.0
Q4	5.2
2010 Q1	6.0
Q2	5.3
Q3	3.8

Source: NBH

The following table sets forth the inflation projection of the NBH as presented in the Latest Inflation Report. The baseline is considered the most likely projection. There is a 30, 60 and 90 percent probability, respectively, that inflation will not exceed the upper 30, 60 and 90, respectively, inflation rate. Similarly, there is a 30, 60 and 90 percent probability, respectively, that inflation will not be lower than the lower 30, 60 and 90, respectively, inflation rate.

	Lower 90			Lower 60		Lower 30		Baseline		Upper 30		Upper 60		Upper 90
	percent
2010 Q4		4.1			4.3		4.4		4.5		4.6		4.7		4.9
2011 Q1		3.6			4.0		4.3		4.6		4.7		5.0		5.5
2011 Q2		2.5			3.2		3.6		4.0		4.3		4.8		5.5
2011 Q3		1.8			2.9		3.4		3.9		4.4		5.0		6.0
2011 Q4		1.1			2.4		3.1		3.8		4.4		5.1		6.4
2012 Q1		0.0			1.5		2.4		3.1		3.8		4.7		6.2
2012 Q2		(0.1	)		1.5		2.5		3.3		4.1		5.1		6.7
2012 Q3		(0.4	)		1.5		2.4		3.4		4.3		5.3		7.2
2012 Q4		(0.5	)		1.5		2.5		3.5		4.5		5.6		7.6

Source: NBH

As of February 28, 2011, the NBH base interest rate was 6.0% and the real interest rate, calculated according to CPI data for February 2011, was 1.8%.

5

In 2010, the nominal net wage index and real wage index were 6.9% and 1.9%, respectively, compared to 1.8% and -2.3%, respectively, in 2009. The increase in net real wages in 2010 was mainly a result of a lower tax burden.

In 2010, the unemployment rate reached 11.2% (compared to 10.0% in 2009), primarily as a result of lay-offs, especially in the private sector.

As of December 31, 2010, Hungary’s international net gold reserves were €104.3 million (compared to €75.9 million as of December 31, 2009) and foreign exchange reserves were €33,570.2 million (compared to €30,600.5 million as of December 31, 2009). As of February 28, 2011, Hungary’s international net gold reserves were €101.0 million and foreign exchange reserves were €33,715.5 million.

POPULATION

Currently, the population of Hungary is approximately 10.0 million. Approximately 68% of the population lives in urban areas and approximately 1.7 million live in Budapest, which is the political, administrative, cultural and commercial center of Hungary. While approximately 92.3% of the population is Magyar, there are minorities of Croat, German, Roma, Romanian, Serb and Slovak ethnicity.

The following table sets forth certain information with respect to the population growth rate in the Republic for the periods indicated:

The Population of Hungary

	As of January 1,
	2007			2008			2009			2010			2011*
Population (in thousand persons)		10,066			10,045			10,031			10,014			9,986
Increase (decrease) in population (%)		(0.1	)		(0.2	)		(0.1	)		(0.2	)		(0.3	)

Source: CSO

* Preliminary data.

6

BALANCE OF PAYMENTS AND FOREIGN TRADE

The following table sets out the balance of payments of Hungary for the periods indicated:

Elements of External Balance(1)

	Balance of									External
	Goods and			Income			Transfer			Financing
	Services			Balance			Balance			Capacity
				(% of GDP)
2006 Q1		(2.7	)		(5.7	)		0.7			(7.5	)
Q2		(1.1	)		(5.9	)		(0.1	)		(7.0	)
Q3		(1.2	)		(6.1	)		0.6			(6.8	)
Q4		(0.5	)		(5.8	)		0.4			(6.3	)
2007 Q1		0.4			(7.3	)		0.0			(6.4	)
Q2		0.7			(7.5	)		0.5			(6.4	)
Q3		1.4			(6.9	)		(0.1	)		(5.4	)
Q4		1.2			(7.0	)		0.4			(5.8	)
2008 Q1		1.0			(7.1	)		(0.3	)		(6.4	)
Q2		0.5			(6.6	)		0.0			(6.0	)
Q3		0.1			(7.2	)		0.0			(6.6	)
Q4		0.3			(7.6	)		2.0			(4.9	)
2009 Q1		2.4			(5.6	)		1.8			(2.5	)
Q2		5.0			(5.7	)		1.9			0.5
Q3		5.9			(5.3	)		1.8			2.6
Q4		6.4			(6.8	)		1.2			1.6
2010 Q1		7.3			(5.4	)		2.3			3.5
Q2		7.1			(5.7	)		2.2			3.1
Q3		7.2			(5.8	)		2.1			3.1

Source: NBH

Note:

(1) Seasonally adjusted data.

In the first quarter of 2010, the current account showed a surplus of EUR 566 million compared to a deficit of EUR 582 million in the first quarter of 2009. In the second quarter of 2010, the current account surplus amounted to EUR 584 million compared to the second quarter of 2009, in which the current account surplus amounted to EUR 161 million. In the third quarter of 2010, the current account surplus amounted to EUR 477 million compared to the third quarter of 2009, in which the current account surplus amounted to EUR 393 million.

The increase in external financing capacity in the first three quarters of 2010 is mainly the result of the growing surplus in the balance of goods and services.

7

The following table sets out the gross and net external debt to GDP ratio of Hungary for the periods indicated:

	Gross		Net
	External		External		General		Banking		Corporate
	Debt		Debt		Government		System		Sector
	(% of GDP)
2006 Q1		76.8		33.8		13.8		15.2		4.9
Q2		79.8		37.0		13.9		18.7		4.4
Q3		79.6		37.2		14.1		18.9		4.2
Q4		78.2		35.8		14.9		17.5		3.5
2007 Q1		79.1		37.1		15.9		18.1		3.1
Q2		82.6		40.4		16.2		19.5		4.7
Q3		85.4		43.3		17.0		20.5		5.8
Q4		87.6		44.2		17.2		20.5		6.6
2008 Q1		84.8		48.5		16.4		23.1		9.1
Q2		80.6		45.7		15.5		22.4		7.7
Q3		87.5		48.8		16.8		23.0		9.0
Q4		98.2		53.5		14.0		29.6		9.9
2009 Q1		119.1		61.2		15.2		34.5		11.5
Q2		106.8		54.9		16.7		27.3		11.0
Q3		108.4		54.2		16.8		26.8		10.6
Q4		108.2		53.6		15.3		26.9		11.4
2010 Q1		111.3		54.6		16.0		27.1		11.5
Q2		120.3		58.0		16.0		29.0		12.9
Q3		112.8		55.0		16.5		26.6		11.9

Note:

(1) Seasonally adjusted data.

Source: NBH

The following tables set forth Hungary’s trade in goods by territory for the periods indicated:

Exports

										Countries
	European									Joining the
	Union			Non-EU						EU after			Asian		American
	Countries			Countries		Total		EU-15		2004			Countries		Countries
	(EUR millions)
2009		46,652	(1)		12,487		59,139		34,982		11,670	(1)		3,272		1,799
2010		55,226	(1)		16,182		71,408		40,814		14,411	(1)		4,625		2,150

Note:

Source: CSO

(1) Including Bulgaria and Romania.

	Food,				Fuels,				Machinery and
	Beverages,		Crude		Electric		Manufactu		Transport
	Tobacco		Materials		Energy		Red Goods		Equipment		Total
	(EUR millions)
2009		4,271		1,301		1,523		16,314		35,729		59,139
2010		4,925		1,722		2,109		19,632		43,020		71,408

Source: CSO

8

Imports

	European									Countries
	Union			Non-EU						Joining the		Asian		American
	Countries			Countries		Total		EU-15		EU after 2004		Countries		Countries
	(EUR millions)
2009		38,089	(1)		17,313		55,401		29,617		8,471		9,846		1,530
2010		44,710	(1)		21,173		65,883		34,583		10,127		12,126		1,640

Source: CSO

Note

(1) Including Bulgaria and Romania

	Food,				Fuels,				Machinery and
	Beverages,		Crude		Electric		Manufactured		Transport
	Tobacco		Materials		Energy		Goods		Equipment		Total
	(EUR millions)
2009		3,046		897		6,055		17,893		27,510		55,401
2010		3,258		1,403		7,315		20,952		32,955		65,883

Source: CSO

Hungary’s foreign trade in goods with industrialized countries (in particular, EU countries) has increased in recent years. EU countries accounted for 77.3% of Hungary’s exports and 67.9% of imports in 2010.

MONETARY SYSTEM

On February 21, 2011, the Parliament approved the amendment to Act LVIII of 2001 on the National Bank of Hungary, which modified the appointment procedure of the members of the Monetary Council (other than the Governor and the Deputy Governors of the NBH, who are members of the Council by virtue of their position). According to the amendment, the four Monetary Council members may be nominated by the Committee on the Economy and Information Technology (a Parliamentary committee) and elected by members of Parliament. The criteria for the appointment of Monetary Council members and the rules guaranteeing their independence with regards to tenure of office, grounds for dismissal and conflicts of interest remain unchanged. The amendment entered into force on February 25, 2011.

As of January 31, 2011, M1, which consists of currency in circulation outside monetary financial institutions plus overnight deposits, was HUF 6,427 billion (compared to HUF 5,852 billion as of January 31, 2010); deposits with agreed maturity of up to two years were HUF 7,655 billion (compared to HUF 8,176 billion as of January 31, 2010); M2, which consists of M1 plus deposits with fixed terms of up to two years, was HUF 14,082 billion (compared to HUF 14,028 billion as of January 31, 2011); repos, money market funds and debt securities with maturities up to two years were HUF 2,150 billion (compared to HUF 1,726 billion as of January 31, 2010) and M3, which consists of M2 plus repos, money market funds and debt securities with maturities of up to two years, was HUF 16,232 billion (compared to HUF 15,754 billion as of January 31, 2010).

On March 1, 2011, the mandates of four members of the Monetary Council expired. As a result, the number of Monetary Council members dropped from seven to three. On March 7, 2011, the Parliament appointed two new members to the Monetary Council. Mr. Ferenc Gerhardt and Ms. Andrea Bártfai-Mager assumed their positions on March 21, 2011, at which time the number of Monetary Council members increased to five.

On March 21 the Parliament appointed two new members to the Monetary Council. Dr. János Bèla Cinkotai assumed his position on March 22, 2011 and Dr. György Kocziszky will assume his position on April 5, 2011, at which time the number of Monetary Council members will increase to seven.

9

In the first two months of 2011 the forint strengthened, partly as a result of favorable global investor sentiment and the anticipated positive effect of the expected introduction of fiscal austerity measures. As of February 28, 2011, the HUF/EUR exchange rate was HUF 272.34/EUR, and the HUF/USD exchange rate was HUF 197.05/USD. As of March 23, 2011 the HUF/EUR exchange rate was HUF 269.66/EUR, and the HUF/USD exchange rate was HUF 190.06/USD.

FINANCIAL SYSTEM

Pursuant to Act CXII of 1996 on Credit Institutions and Financial Enterprises, in effect since January 1, 1997 (as amended from time to time), only credit institutions, which comprises banks, specialized credit institutions and co-operative credit institutions, are entitled to collect deposits from the public, provide money transmission services and make loans. Total assets of credit institutions amounted to HUF 28,157.3 billion as of December 31, 2010. Cooperative credit institutions may only provide limited types of financial services, primarily taking deposits and making small loans. As of December 31, 2010, Hungarian co-operative institutions held aggregate total assets of HUF 1,733.6 billion.

As of January 31, 2011, the year-over-year change in domestic credit, credits to enterprises, credits to households and broad money (M3) was 0.5%, -3.6%, 5.0% and 3.0%, respectively, compared to -10.0%, -10.1%, -5.6% and 0.9%, respectively, as of December 31, 2009.

The following table sets forth the amount and growth rate of customers deposits for the periods indicated:

	Stock of Customer Deposits		Annual Growth Rate
	(HUF billions)		(The same period of
			the previous year = 100)
Jan. 2009		11,572		108.0
Feb. 2009		11,608		104.8
Mar. 2009		11,682		104.4
Apr. 2009		12,217		108.2
May 2009		12,390		110.4
June 2009		12,645		113.5
Jul. 2009		12,697		107.6
Aug. 2009		12,735		111.9
Sept. 2009		12,759		110.7
Oct. 2009		12,719		112.9
Nov. 2009		12,529		110.1
Dec. 2009		12,663		108.3
Jan. 2010		12,686		109.6
Feb 2010		12,654		109.0
Mar. 2010		12,522		107.2
Apr. 2010		12,530		102.6
May 2010		12,476		100.7
June 2010		12,503		98.9
Jul. 2010		12,470		98.2
Aug. 2010		12,567		98.7
Sept. 2010		12,561		98.4
Oct. 2010		12,562		98.8
Nov. 2010		12,612		100.7
Dec. 2010		12,593		99.4

Source: NBH

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The following table sets forth the capital adequacy ratios and the tier 1 capital adequacy ratios of the Hungarian banking sector for the end of the periods indicated:

	2008 Q4		2009 Q1		2009 Q2		2009 Q3		2009 Q4		2010 Q1		2010 Q2		2010 Q3		2010 Q4
	(percent)
Capital adequacy ratio		11.2		10.3		12.3		13.1		13.1		13.0		12.6		13.2		13.3
Tier 1 capital adequacy ratio		9.3		8.1		10.3		10.9		11.0		10.9		10.6		11.1		11.3

Source: NBH

The following table sets forth the ratio of liquid assets compared to the total assets of the Hungarian banking sector as at the end of the periods indicated:

	Liquid Assets to
	Total Assets
	(percent)
2006 Q1.		22.5
Q2		20.8
Q3		20.4
Q4		20.9
2007 Q1		21.2
Q2		19.5
Q3		18.2
Q4		17.7
2008 Q1		17.2
Q2		18.1
Q3		18.1
Q4		18.4
2009 Q1		18.1
Q2		22.1
Q3		22.6
Q4		22.6
2010 Q1		23.4
Q2		22.9
Q3		23.6
Q4		21.6
Jan. 2011		23.4

Source: NBH

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The following table sets forth the credit flow to households during the periods indicated:

							Loans from
	Bank			Bank			Non-Bank
	Loans			Loans			Financial
	HUF			FX			Intermediaries			Total
	(HUF billions)
2006 Q1		(15.6	)		176.2			20.2			180.7
2006 Q2		3.8			273.3			43.3			320.3
2006 Q3		24.9			268.6			48.2			341.6
2006 Q4		10.7			299.8			3.1			313.6
2007 Q1		(7.2	)		225.0			51.6			269.5
2007 Q2		(7.8	)		320.0			51.4			363.5
2007 Q3		(6.7	)		349.5			73.0			415.9
2007 Q4		(38.1	)		369.5			28.8			360.2
2008 Q1		(31.0	)		293.1			65.0			327.1
2008 Q2		(13.6	)		331.1			43.4			360.9
2008 Q3		(5.5	)		336.2			52.7			383.4
2008 Q4		(27.6	)		206.9			25.2			204.5
2009 Q1		5.9			19.2			(37.8	)		(12.6	)
2009 Q2		38.3			(29.3	)		(25.7	)		(16.8	)
2009 Q3		49.0			(29.5	)		(43.1	)		(23.5	)
2009 Q4		(10.2	)		(32.3	)		(17.7	)		(60.2	)
2010 Q1		22.6			(67.6	)		1.9			(43.1	)
2010 Q2		45.3			(95.4	)		(40.1	)		(90.2	)
2010 Q3		76.4			(131.4	)		(20.9	)		(76.0	)
2010 Q4		46.4			(131.7	)		(48.3	)		(133.6	)

Source: NBH

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The following table sets forth the total household loans in local currency (HUF) and foreign currency (FX) as at the end of the periods indicated:

	HUF		FX
	(HUF billions)
2006 Q1		2,257		1,318
2006 Q2		2,261		1,696
2006 Q3		2,285		1,891
2006 Q4		2,296		2,016
2007 Q1		2,289		2,177
2007 Q2		2,281		2,437
2007 Q3		2,274		2,826
2007 Q4		2,236		3,221
2008 Q1		2,205		3,778
2008 Q2		2,192		3,698
2008 Q3		2,186		4,216
2008 Q4		2,169		5,094
2009 Q1		2,175		5,867
2009 Q2		2,213		5,111
2009 Q3		2,262		5,094
2009 Q4		2,252		5,140
2010 Q1		2,275		5,167
2010 Q2		2,320		5,873
2010 Q3		2,388		5,521
2010 Q4		2,438		5,689

Source: NBH

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The following table sets forth the share of foreign exchange denominated household loans as a percent total outstanding amount as at the end of the periods indicated:

	Share of FX Loan
	(percent)
2006Q1.		38.6
Q2		43.1
Q3		46.5
Q4		50.3
2007Q1		53.1
Q2		56.6
Q3		59.9
Q4		63.2
2008Q1		65.4
Q2		67.6
Q3		69.6
Q4		70.6
2009Q1		70.7
Q2		70.2
Q3		69.6
Q4		69.5
2010Q1		69.4
Q2		71.7
Q3		69.7
Q4		70.0

Source: NBH

Although not a guaranty of future liquidity support, particularly by banks that have their own capital shortfalls, foreign banks have provided significant funding to their Hungarian operations. The following table sets forth the growth of foreign funding of the banking sector and the share of parent bank funding within the total foreign funding.

	2008 Q2		2008 Q3		2008 Q4		2009 Q1		2009 Q2		2009 Q3		2009 Q4		2010 Q1		2010 Q2
	(percent)
Foreign funding of the banking sector (End of 2008 Q2 = 100)		100.0		106.4		114.9		116.0		108.9		103.6		104.2		104.3		103.3
Ratio of parent bank funding within total foreign funding		51.1		51.1		55.5		59.3		59.5		58.8		58.2		61.1		63.6

Source: NBH

PUBLIC FINANCE

According to data available in March 2011, the general government deficit (including local governments) amounted to HUF 1,014.3 billion (3.9% of GDP) for the year 2009, according to the methodology of the IMF, according to the Manual of Governance Finance statistics, IMF 1986 (“GFS”). The general government deficit for the year 2009, according to the European

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System of Accounts 95 methodology (local governments included), reached HUF 1,156.3 billion, equaling 4.4% of the GDP for the year 2009. The Government projects that the budget deficit will reduce to 2.9%, 2.5%, 2.2% and 1.9% of GDP, respectively, in 2011, 2012, 2013 and 2014, respectively. Due to one-off revenues, the budget surplus to GDP ratio may reach 4% in 2011. As a result the public debt to GDP ratio may fall to 80% in 2011, 72% in 2012, 68% in 2013 and 66% in 2014. As a result, the current ongoing Excessive Deficit Procedure against the Republic of Hungary may be abolished. The Government intends to reduce income centralization to GDP ratio to 42% in 2012, 40% in 2013 and 39% in 2014, and to reduce redistribution to GDP ratio to 44% in 2012, 42% in 2013 and 41% in 2014.

On February 11, 2011 the Government announced the establishment of a stability reserve fund in the amount of HUF 250 billion. The measure includes the freezing of the funds allocated in the budget to certain ministries in the aggregate amount of HUF 187 billion collectively.

On March 1, 2011, the Government announced a structural reform package for the years 2011-2014, called the “Széll Kálmán Plan” (the “Structural Reform Plan”). The primary objective of the Structural Reform Plan is to reduce Hungary’s public debt, mostly via permanent cuts on the expenditure side. The contemplated measures are expected to ease the Government’s financing needs, strengthen potential growth and stimulate employment, with an anticipated budgetary savings of HUF 550 billion in 2012 and HUF 902 billion annually from 2013. The Structural Reform Plan is anticipated to reduce the Republic’s public debt to 65-70% of GDP by the end of 2014. The most affected areas are the following:

•  Labor market:  The Government proposes to encourage inactive groups to re-enter the labor market by redesigning the unemployment benefit system by shortening the covered period and defining the maximum level of benefits, implementing active labor market policies financed by EU funds, introducing a maximum allowance of social transfers that will cover each type of support, maintaining family allowances at the present nominal level and implementing vocational training changes to address market needs. The Government expects that in 2012, 2013 and 2014, respectively, approximately one hundred-thousand out of the 2.5 million currently inactive people each year may re-enter the labor market and may become employed as a result of the measures implemented. Therefore, the number of employed people may exceed the current number by approximately three hundred-thousand by the year 2014.

•  Pension system:  The Government proposes to improve the pension system’s sustainability in a way that contributes to increasing the activity rate by radically tightening the early retirement schemes and revising disability pension expenditures.

•  Public transport:  The Government proposes to abolish parallel services between public transport companies by establishing a holding company, the National Transport Company. At the same time, the Government intends to cut back the widespread price-subsidy system by abolishing free transportation benefits for family members of transport employees other than free transportation for individuals over age 65.

•  Higher education:  The Government proposes to attune vocational training and higher education to the needs and expectations of the economy and the labor market. To this end, the Government aims to raise the proportion of scientific and technological degrees

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and modernize the tuition and institutional system by adjusting the number of state-sponsored students.

•  Prescription drug subsidy system:  The Government intends to save HUF 120 billion within three years’ time by transforming the medicine subsidy system.

•  State and local government finance:  The Government proposes to increase the efficiency of local governments by reducing fragmentation by making credit for local governments conditional on governmental authorization. In terms of state level administration, the Government proposes to modify the public procurement law, in parallel with the abolition of the practice of subcontracting certain tasks that can be carried out via government or central administrative staff. The Government also aims to improve the efficiency of tax collection.

•  Cuts in administrative costs:  The Government’s “First Strike Measures” aim to reduce the administrative burdens of enterprises by 25% in nine prioritized areas devised in cooperation with a wide range of entrepreneurs. The target is to achieve a non-budgetary effect of HUF 100 billion.

The following table sets forth the Ministry for National Economy’s estimates of the planned budgetary effect of the measures referenced above.

	2011		2012		2013		2014
	EUR millions
Employment and labor market		0		720		780		780
Pension system reform		44		340		470		470
Public transport		0		170		220		220
Higher education		0		44		140		140
Prescription drug subsidy system		0		300		440		440
State and municipal funding		0		120		450		450
Contributions from revenue measures		0		330		810		810
Total		44		2,024		3,310		3,310

Source: MNE

The following table sets forth the legislative measures planned in order to implement the Structural Reform Plan:

Date	Action
From 1 April 2011	The Ministry of National Resources and the Ministry for National Economy will conduct consultations with the relevant parties about a new, more efficient funding system for prescription drugs.
By 1 July 2011	The Ministry of National Development and the Ministry of Interior will work out the details of regulations facilitating the freezing of utility costs.
By 1 July 2011	The Parliament will vote on the new public procurement law.
By 1 July 2011	National Employment Program.
By 1 July 2011	The Republic will have completed the new roadmap regarding public employment and the new legislation that will serve as the framework for the public employment system, which will be jointly worked out by the Ministry of the Interior, the Ministry for National Economy and the Ministry of Rural Development.
By 1 July 2011	By July 2011 new legislation and institutions constituting the base of the new certification and registry system for disabled persons will be established by the coordination of the Ministry of National Resources.

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Date	Action
By 1 July 2011	Together with relevant departments, the Ministry of National Resources will revise the system of early retirement schemes and they will propose amendments in this regard.
By 1 July 2011	The Ministry of Justice and Public Administration, together with the Ministry of the Interior, the Ministry of Defense and the Ministry of National Resources, will work out the new career models for public sector employees.
By 1 July 2011	The Ministry of National Resources and the Ministry for National Economy will revise the regulations on sick pay transfer payments and will make proposals for amendments.
By 1 July 2011	The Ministry of National Resources and the Ministry for National Economy will work out the legislation necessary for the operation of the new prescription drug subsidy system.
By 1 July 2011	The Ministry of Justice and Public Administration will examine whether the current criminal justice regulations are sufficient for the prevention of sick pay fraud.
By September 2011	New legislation to be voted on that regulates public and higher education.
By September 2011	New Labor Code.
By 31 December 2011	The Republic will have developed proposed legislation for the operation of the new pension system.
By 31 December 2011	The Ministry for National Economy will implement measures that will further reduce the tax liabilities of enterprises.
By 31 December 2011	The Ministry of National Development will complete the plan aimed at the debt restructuring and reorganization of the MÁV, Hungary’s national railway company.
By 31 December 2011	The Ministry of Justice and Public Administration will draft legislation to reduce the burdens of enterprises by making foreclosure and liquidation procedures faster and more transparent.
By 1 January 2012	The Republic will revise the former classifications in the framework of the new, transparent system for the certification and registry of disabled persons in a fair and systematic way.
By 1 January 2012	The National Transport Holding Company will be established and the structural consolidation of public transport will begin.
By 1 January 2012	The Republic will launch the new system of public employment.
By 1 January 2012	The new, sustainable pension system will be launched.
	The amount of political parties’ nominal funding will be frozen at the level of 2011.
	As soon as the new Constitution enters into force, a system aimed at tax reduction will be implemented.
On 1 September 2012	The new legislation on public education will enter into effect.
From 1 September 2012	The new system of higher education will be launched.
On 1 January 2013	New electronic toll system will be launched based on road utilization.
From 2014	Elections for a 200-member National Assembly.

Source: MNE

On March 7, 2011, the Ministry for National Economy published the preliminary general government deficit (excluding local governments) for the first two months of 2011, in accordance with GFS methodology. The deficit reached HUF 559.7 billion, equaling 81.4% of the targeted deficit for the year 2011, calculated on a pro rata basis for the period.

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On March 24, 2011, the state secretary at the Prime Minister’s Office announced that the Republic’s 2010 general government deficit (local governments included) amounted to approximately 4.1%-4.2% of GDP according to the ESA methodology, exceeding the 3.8% target. According to the state secretary, the gap was mainly caused by overspending by local governments. The Government expected the deficit of local governments to be around 0.3-0.5% of GDP last year, but the deficit reached approximately 0.9%.

Pursuant to legislation enacted by Parliament on November 16, 2010, from January 1, 2013, the corporate tax rate will be reduced to flat rate of 10%. As of January 1, 2011, the withholding tax liability of non-Hungarian tax resident entities was abolished. As a result, interest and royalties may be paid to such companies free from the 30% withholding tax. As of January 1, 2011, the previously existing tax on credit institutions has been reformed. The amount of the tax (payable by credit institutions) became deductible from the surtax imposed on financial institutions payable by the particular credit institutions, whilst the rate of the tax has been increased to 30% of the accounting profit (before deducting the surtax imposed on financial institutions) of the credit institution.

NATIONAL DEBT

The following table sets forth the ratio of general government debt to GDP as at the end of the periods indicated.

General Government Debt/GDP(1)
2006	65.7	%
2007	66.1	%
2008	72.3	%
2009	78.4	%
2010(2)	80.3	%

Source: EUROSTAT and NBH

Note:

(1) Debt is according to ESA methodology and includes local governments

(2) Preliminary data

The ratio of the Republic’s total public debt according to ESA methodology to GDP at the end of 2010 was 80.3%. The Government projects that the ratio of the Republic’s total public debt to GDP will decrease to 80%, 72%, 68% and 66%, respectively, at the end of 2011, 2012, 2013 and 2014, respectively.

As of January 31, 2011, the internal public debt according to GFS methodology (debt denominated in local currency), the external debt (debt denominated in foreign currency) and other liabilities of the Republic totaled HUF 11,110.1 billion, HUF 8,672.8 billion and HUF 204.7 billion, respectively, compared to HUF 10,461.9 billion, HUF 8,890.2 billion and HUF 41.7 billion, respectively, as of January 31, 2010.

According to the Ministry for National Economy’s 2011 financing plan, the Republic’s net financing need is anticipated to decline to HUF 860 billion in 2011. Gross financing requirements are estimated at HUF 6625.2 billion. Scheduled gross redemptions are HUF 5765.2 billion in 2011. A part of the funds returned from the mandatory private pension funds will be used for debt reduction. In 2011, the Republic plans to issue €4 billion foreign currency bonds, matching the amount of foreign currency debt maturing in 2011.

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The following table sets forth the amount of local currency denominated Hungarian government bond issues during the periods indicated:

	2008Q1		2008Q2		2008Q3		2008Q4		2009Q1		2009Q2		2009Q3		2009Q4		2010Q1		2010Q2		2010Q3		2010Q4
	(HUF billions)
Bond issuance		445.0		385.0		360.0		80.0		20.0		88.4		445.3		392.4		459.4		325.2		451.7		420.6

Source: GDMA Pte Ltd.

The following table sets forth the Republic’s total year to date international bond issuance as at the end of the periods indicated.

International Bond Issuance (Year to Date)
(EUR millions)
2003	2,000
2004	3,190
2005	3,987
2006	2,576
2007	1,155
2008	1,721
2009	1,000
2010	1,512
2011(1)	4,000

Source: GDMA Pte Ltd. and NBH

Note:

(1) Forecast based on the Budget

As a consequence of the global financial crisis beginning in 2007, the secondary market liquidity for the Republic’s bonds has fallen.

As of January 1, 2011 the number of primary dealers is fifteen, out of which four primary dealers, as new additions in 2010 and 2011, are non-resident banks.

The following table sets forth the share of the fixed-rate bonds with 3, 5, 10 and 15 year maturity and the floating rate bond with 5 year maturity in the total amount of Hungarian government bonds issued in 2010:

	Share
	(%)
3 years		45.5
5 years		30.8
5 years FRN		2.4
10 years		18.1
15 years		3.1

Source: GDMA Pte Ltd.

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The following table sets forth the share of investor groups of the local currency denominated government debt as at the end of the periods indicated:

	Breakdown of the Investor Base of HUF Denominated Debt
	2005		2006		2007		2008		2009		2010Q3
	(percent)
NBH		1.7		1.5		1.4		3.6		3.1		2.7
Banks		21.1		23.1		25.6		31.7		33.5		33.2
Households		10.9		10.7		8.2		9.1		7.4		6.4
Non-residents		27.8		28.7		29.7		22.2		19.8		21.4
Pension & Insurance		27.2		27.5		26.2		24.2		28.4		28.4
Funds		7.8		5.5		6.2		4.9		5.1		5.4
Government		0.9		0.7		0.8		1.5		0.6		0.5
Other		2.6		2.3		2.0		2.9		2.1		2.1
Total		100.0		100.0		100.0		100.0		100.0		100.0

Source: NBH

The following table sets forth the maturity profile of the general government debt as of the end of the year 2010:

	Maturity Profile of the Debt of the Central Government as of December 31, 2010
					Retail		HUF		IMF/EC/		FX		FX
	HUF Bonds		T-Bills		Securities(1)		Loans		IFI Loans		Loans		Bonds		Other(2)
							(HUF billions)
2011		972.9		1618.2		274.2		0.0		599.1		27.9		555.4		220.0
2012		956.6		0.0		26.4		0.0		946.5		0.0		373.1		0.0
2013		1627.4		0.0		0.0		0.0		1016.9		0.0		399.0		0.0
2014		832.5		0.0		0.0		78.5		806.5		0.0		766.0		0.0
2015		908.5		0.0		0.0		42.0		44.3		0.0		320.8		0.0
2016		792.4		0.0		0.0		24.0		606.1		0.0		516.1		0.0
2017		873.3		0.0		0.0		0.0		129.2		0.0		526.5		0.0
2018		0.0		0.0		0.0		0.0		86.6		0.0		418.1		0.0
2019		628.5		0.0		0.0		22.5		11.4		0.0		0.0		0.0
2020		508.8		0.0		0.0		46.5		18.3		0.0		675.0		0.0
2021		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0
2022		0.0		0.0		0.0		103.5		0.0		0.0		0.0		0.0
2023		282.7		0.0		0.0		36.4		0.0		0.0		0.0		0.0
2024		0.0		0.0		0.0		91.6		0.0		0.0		0.0		0.0
2025		0.0		0.0		0.0		55.6		0.0		0.0		0.0		0.0
2026		135.1		0.0		0.0		40.2		0.0		0.0		0.0		0.0

Source: GDMA Pte Ltd.

Note:

(1)	Treasury savings bills, interest bearing treasury bills, treasury savings bond and premium government bonds.
(2)	Mark-to-market deposits.

As of December 31, 2010, the Government’s long-term and short-term obligations to the NBH, including those due to net foreign currency losses, were HUF 0 and HUF 249.5 billion, respectively, compared to HUF 0 and HUF 279.0 billion as of December 31, 2009.

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