An upgrade of Hungary back to investment grade by ratings agency Fitch is a result of economic reforms the government started in 2010, Minister of National Economy Mihály Varga has asserted.
The upgrade is evidence that the Hungarian economic restructuring has been a success and reforms are working, Varga said on Saturday after the upgrading the previous day. He added that Fitch had acknowledged improving fiscal developments, falling public debt, a favourable current account balance and the improving situation of the banking sector as the basis for the upgrade.
Varga said the upgrade is good news for Hungarians because it means the state will spend less on debt, leaving more money for investments, tax reductions and raising wages. If another ratings agency upgraded Hungary, savings could reach 40-60 billion forints in the next year to year and a half.
Fitch raised Hungary’s sovereign rating to “BBB-” from “BB+”, moving it back to investment grade, in a scheduled review last Friday. The outlook for the rating is “stable”.
The agency said Hungary’s high current account surpluses, high inflows of European Union funds, an external deleveraging of banks, a programme that created incentives for lenders to buy government securities and the conversion of foreign-currency mortgages into forints had “contributed to a sharp improvement in Hungary’s external balance sheet and reduction in vulnerability”.
These had been the main drivers behind the rating. Among the other drivers Fitch noted were tighter fiscal policy, a narrowing deficit and an improved situation in the banking sector.
Fitch said a continued reduction in external indebtedness supported by current account surpluses, a sustained decline in the state debt-to-GDP ratio and stronger GDP growth potential supported by an improved business environment could trigger a positive rating action. A renewed rise in state debt as a proportion of GDP and a deterioration in the economic policy framework potentially leading to adverse developments in external or government finances could lead to a negative rating action.
Raiffeisen Bank chief analyst Zoltán Török said the upgrade confirms efforts to stabilise the economy over the past four to five years. He said a fiscal loosening this year and next was “not too serious” and the effect would be countered, in part, by policy measures boosting demand and contributing to economic growth.
Erste analyst Vivien Barczel said Moody’s could upgrade Hungary in a review scheduled for July 8. An upgrade from Standard and Poor’s is not expected this year, she said.
Hungary is rated “Ba1” by Moody’s and “BB+” by Standard and Poor’s, both one notch under investment grade. While both agencies’ outlooks for the ratings are “stable”, Fitch’s outlook before the upgrade last Friday was “positive”.
Our good work reduced to junk: Socialists
Throughout the terms when the Socialists were in government, Hungary’s credit rating was investment grade, the now-opposition party said in response to the upgrade by Fitch. The Socialists said Hungary had been put in junk category as a result of the unpredictable economic policies of Prime Minister Viktor Orbán and central bank governor György Matolcsy. Hungary had paid a “huge” price, as demonstrated by the more than four million people living under subsistence level. “We will say it in a way that even Viktor Orbán can understand: why should we be happy about Hungary reaching the third division league after six years, when it already played in the premier league in 2010 in an economic sense,” the Socialists said.
