Following the Friday decision of the credit rating agency Moody’s, Hungary now has an investment grade with all three large credit rating agencies which may open a new chapter in the country’s debt service, and Hungary may finally consider a more ambitious course in the reduction of its sovereign debt, the Minister for National Economy stated.
Mihály Varga said at his press conference held on Saturday in Budapest: by virtue of the fact that the country has been restored to the investment grade category, the cost of debt financing may decrease by some HUF 10 billion in the central budget in the next twelve to eighteen months, but it is far more important that this could further improve the country’s ability to attract capital.
The Friday decision of Moody’s Investors Service to raise the Hungarian sovereign debt rating to the investment grade was a favourable and long-anticipated measure which stands as yet another external confirmation of the fact that the Hungarian economy has been placed on a sustainable course of growth, and the Government’s economic policy is successful, he added.
The Minister was of the opinion that we should neither under-estimate, nor over-estimate the decision. We would over-estimate the decision if we were hoping for a sudden, dramatic change in the perception of the Hungarian economy as the market saw it in a positive light long before the credit rating agencies did: investors assigned the same risk margins to Hungary as to Poland which had a higher grade with the credit rating agencies.
It is, however, equally a mistake to under-estimate the decision in Mr Varga’s view as many investors continue to regard the opinion of the credit rating agencies as important guidance. It is true though that, from this respect, the decision of Moody’s was only „an extra”, given that investment funds already see the recommendations of two credit rating agencies as sufficient for the purposes of their investment decisions.
Mr Varga highlighted several findings from the reasoning of Moody’s with which the Government agrees, including the facts that the Hungarian debt course is stable, and both its percentage to GDP and structure are improving. While it is difficult to estimate the year-end exchange rates, the Government is expecting to see yet another fall in the debt rate to GDP this year, similar to the last five years, Mr Varga said, remarking that there was a period this year when the debt also decreased in nominal terms.
The improvement of the structure of the debt manifests itself in the reduction of the percentage of the foreign currency debt: the Government is expecting its rate to fall below 30 per cent. This is a milestone as it amounted to 50 per cent six years ago, he said.
Mr Varga was pleased to acknowledge that the credit rating agency did not only conclude that the growth of the economy is stable and its structure is improving, but also the fact that the measures of the Government have achieved their intended goals and the players of the economy have responded to them.
Mr Varga highlighted that they also agree with the credit rating agency regarding their positive assessment of the labour market processes in Hungary. The Hungarian economy is ever closer to reaching the state of full employment as unemployment fell to just 4.9 per cent most recently. They likewise agree that the absorption of EU funds may accelerate as – based on the Government’s plans – the actors of the economy will have access to all the calls for proposals for the period between 2014-2020 in 2017.
The investment environment has changed for the better. In this context, the Minister reiterated that they decided on the reduction of the bank levy in order to promote the expansion of lending by banks.
He also acknowledged with satisfaction the finding of Moody’s to the effect that the Government’s housing construction programme is a positive risk from the respect of economic growth, while they see the attainment of a 2-2.5 per cent GDP growth as realistic. Additionally, the credit rating agency appreciated the fact that the surplus of the current balance of payments and of foreign trade is sustainable.
In answer to the question as to whether the Government is preparing to issue government bonds nominated in foreign currencies, Mr Varga pointed out: the fundamental intention remains the reduction of the sovereign debt and the raising of the percentage of forint debts. Consequently, there are no plans for the issuance of foreign currency bonds in the near future. At the same time, he remarked that in the improving yield environment, there is scope for improving the structure of the foreign currency debt through offerings with terms and conditions that are more advantageous than at present.
In this context, he mentioned that the Government will decide on the settlement bonds next week which played an important part in debt financing in his view. Even if the Government decides to retain these instruments, due to the more favourable financing environment, the attached terms and conditions will have to be adjusted. Upon the adoption of the relevant decision, it is also worth considering that the use of an instrument like this is a facility for a country, he added.
In answer to the question regarding his view on the statement made by central bank governor György Matolcsy to the effect that the decisions adopted by the Ministry for National Economy with respect to the management of the private pension fund portfolio years ago do not fall within the responsibilities of the Governor of the National Bank of Hungary, Mr Varga stated: in his view, the legal rules as in force at any time determine who is responsible for what. „Evidently, when we make decisions as political leaders, we must take responsibility for them”, Mr Varga said.
He stressed at the same time that the important decisions adopted by the Orbán Government in the past six years have been responsible and reasonable decisions. The transformation of the pension system allowed it to remain sustainable in the long run, he added.
Regarding the advertisement tax, he said that the underlying goal was to improve the situation of small and medium-sized businesses. The decision of the European Commission overrode this. A decision will have to be made as to whether the Government will turn to the European Court, or will change the relevant legislation.
(Ministry for National Economy)