Hungary Moves Toward Fitch Investment Grade on Finances

Updated on

Hungary moved toward regaining its investment grade as Fitch Ratings raised the outlook on the country’s sovereign credit assessment, citing sturdier public finances and faster economic growth.

The outlook on the eastern European nation’s BB+ rating, the highest junk grade, was increased to positive from stable, meaning Fitch is more likely to upgrade it than keep it stable or cut it. It remains on par with Portugal and Macedonia.

Greater policy stability, a better business environment and sustained debt reduction could lead to an upgrade, Fitch said in a statement Friday. It cited Hungary’s current-account surplus, the drop in domestic lenders’ external debt and a pledged cut in banking levies for the improved outlook.

“Although regaining market credibility is going to take some time, Fitch sees this development as potentially positive for the rating,” Arnaud Louis, a director at Fitch, said in the statement, referring to the government’s plan to cut taxes on banks from 2016.

Hungary lost its investment grade at the three major rating companies in 2011 and 2012 after Prime Minister Viktor Orban effectively nationalized private pension funds and levied Europe’s highest bank tax to avoid an international bailout. After suffering a recession and ballooning budget deficit, the economy has resumed growth and the government has brought its fiscal shortfall back within European Union limits.

Budget Discipline

Hungarian consumers are benefiting from state-mandated cuts to household energy bills, refunds from banks for charges courts deemed unfair and the conversion of foreign-currency loans into forint. The economic rebound helped trim the government’s debt ratio in 2014 and will spur growth of 3.1 percent this year in gross domestic product, official forecasts show.

“A more favorable credit rating has been overdue for Hungary for two years,” Economy Minister Mihaly Varga said, according to the transcript of an interview with Magyar Hirlap newspaper published on Saturday. “The increase in debt has stopped, the country’s external exposure has decreased and budget discipline is steady.”

Standard & Poor’s upgraded Hungary to its highest junk grade in March, citing reduced vulnerability to external shocks and a pickup in economic growth. Moody’s Investors Service also rates Hungary’s credit one step below investment.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE