Hungary Moves Toward Moody’s Investment Grade Post Outlook Lift

  • Hungary's sovereign credit rated highest junk grade at Moody's
  • Decline in government debt main reason for outlook revision

Hungary moved closer to regaining its investment grade status at Moody’s Investors Service after Prime Minister Viktor Orban’s government helped reduce the country’s debt load and kept the budget deficit in check.

Moody’s lifted the outlook on the eastern European nation’s sovereign rating to positive from stable while keeping the level at the highest junk grade, Ba1, according to a statement published on Friday. That means Moody’s is more likely to upgrade Hungary to investment grade in the future than to keep it at junk status.

Moody’s cited a sustained downward trend in government debt, prudent fiscal policy and improving economic outlook for the change in outlook. 

“An upgrade would be dependent on further confirmation that economic policy making is more stable than in the past, in turn supporting sustained economic growth, fiscal consolidation and a further reduction of external vulnerabilities,” it said.

Moody’s was the first rating agency to strip Hungary of its investment grade in 2011 after Orban effectively nationalized private pension funds and levied industry-specific taxes to avoid an international bailout. Since then, the economy rebounded from a recession, the government has trimmed its fiscal shortfall to within the European Union limit of 3 percent of gross domestic product, and it’s pledged to cut the bloc’s highest bank tax to boost lending.

Forint Slips

The forint weakened 0.3 percent to 314.5 per euro on Friday, taking the week’s decline to 1.3 percent. The yield on the 10-year local-currency government bond dropped to 3.5 percent, from around 10 percent when Moody’s cut the country’s credit to junk four years ago.

“Hungary has entered the anteroom of a credit upgrade at Moody’s, ” which joined international financial institutions and investors in acknowledging the country’s economic achievements, the Economy Ministry said in a statement on Saturday.

Hungary’s economy expanded 3.7 percent last year, the third-fastest pace in the EU after Ireland and Luxembourg. On Thursday, the EU executive forecast growth slowing to 2.9 percent this year and 2.2 percent in 2016.

"Moody’s believes that going forward real GDP growth rates of 2 percent and 2.5 percent can be sustained," according to the statement. The rating company expects the government debt ratio to decline to 74.3 percent of gross domestic product this year and to below 73 percent in 2016 compared with a 2011 peak of 81 percent.

Fitch Ratings and Standard & Poor’s both rank Hungary’s credit one step below investment-grade.