ADVERTISEMENT

Moody's upgrades Hungary to Baa2, outlook stable

Ratings

Image by Andrius Zemaitis / Shutterstock.com

Moody's Investors Service upgraded Hungary's sovereign rating to Baa2 from Baa3, with a stable outlook, at a scheduled review on Friday, according to a report by state news wire MTI.

Hungary's Moody's rating now matches the sovereign ratings assigned to it by Fitch and S&P Global Ratings.

"Hungary's economic resilience is underpinned by the strong growth rebound throughout the first half of 2021, helped by effective fiscal and monetary policies, and further complemented by a strong medium-term outlook building on robust investment, with potential growth of around 3-4% over the next five years," Moody's said.

"Moody's expectation that the projected strong growth rebound and medium-term outlook over the coming years will support fiscal consolidation and reduction in the government's debt burden, which underlines Hungary's resilient fiscal strength," it added.

Moody's said Hungary's medium-term outlook until 2025 is supported by high investment rates, reflecting the country's attractiveness for foreign investors, as well as by the government's growth-friendly economic policies, including a low corporate income tax rate and ongoing reductions in employers' social security contributions.

Moody's noted that Hungary's investment rate stood at 27.6% of GDP in 2020, over the EU average of 22%, and added that none of the flagship foreign investment projects in the country were canceled during the year.

Moody's said it expects "only very limited scarring" from the coronavirus pandemic and put Hungary's real GDP level in 2023 only about 1.5% lower when compared with the pre-crisis trend.

Moody's acknowledged that Hungary's general government deficit widened sharply in 2020 on stimulus during the coronavirus crisis, causing state debt relative to GDP to jump. The rating agency also said it expects the government to use "most of" the fiscal space created by stronger growth in 2021, but pointed out that its own forecast for this year's general government deficit is 6.5% of GDP, smaller than the Finance Ministry's target of 7.5%.

Moody's added that Hungary will be on one of the few sovereigns it rates in the Baa space that will see a decline in its state debt-to-GDP ratio between 2020 and 2023.

Moody's said it expects Hungary's debt affordability metrics to "remain strong" over the next three to five years.

Moody's noted the country's "contentious relationship" with the European Union has culminated in the delayed approval of its plan to use funding from the EU's Recovery and Resilience Facility (RRF) but said it expects an agreement on the funding "will be eventually reached" and the impact of a temporary delay on growth and government finances "will be marginal".

"Challenges to Hungary's long-term growth outlook stem from population aging and potential difficulties to moving up the value chain, fostering innovation and productivity, and ensuring continued income convergence," Moody's said.

Moody's said a faster reduction of Hungary's debt burden and implementation of further structural reforms would be credit positive, while a "slower and less pronounced" fiscal consolidation and debt reduction could move the outlook on the rating to negative, although an outright downgrade "is unlikely".

ADVERTISEMENT

Fiscal, monetary policy partnership needed to rein in CPI - ... Analysis

Fiscal, monetary policy partnership needed to rein in CPI - ...

Parl't votes to phase out savings coops integration framewor... Parliament

Parl't votes to phase out savings coops integration framewor...

Roche Szolgáltató appoints P&C business partner lead Appointments

Roche Szolgáltató appoints P&C business partner lead

FAO–Food Bank convoy delivers food to those in need City

FAO–Food Bank convoy delivers food to those in need

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.