In the opinion of Fitch Ratings, Government efforts aimed at reducing general government debt and keeping the economy on a sustainable growth path have been bearing fruits. As a confirmation of positive economic processes, in its upbeat press release, the rating agency upgraded Hungary’s rating outlook from negative to positive and thus, the country is only one notch away from investment grade category. Several factors have triggered the revision.

A pivotal component was the Government’s commitment to maintaining a deficit target below 3 percent of GDP. Hungary’s capital market has been cash-rich and liquid which ensure sufficient fiscal flexibility. In addition, debt management has been efficient, efforts to strengthen the domestic leg of debt financing have been successful and the proportion of forex liabilities within state debt has also been declining.

The country’s external debt level has also dropped, thanks to the fact that the indebtedness of enterprises and banks has also fallen significantly over the past years. Factors such as current account surpluses posted in past years, massive forex reserves, favourable external liquidity position and forint exchange rates that have proven resilient to market turbulences show that the country’s external vulnerability has diminished. This improved exposure has enabled Government measures to take full effect, reversing negative investment and consumption trends. EU development funds have also played a key role in outstanding investment growth last year, while – as retail data demonstrate – domestic consumption is also picking up. Household consumption will continue to remain a major growth engine, complemented by low inflation, positive labour market trends and marked employment growth.

Fitch points out that the MoU concluded by the Government and the EBRD, which facilitates bank sector regulation based on common partnership and international best practices, is expected to boost lending and subsequent economic growth.

Commenting on the decision, Minister for National Economy Mihály Varga said that the country would have deserved a better rating already in the past two years, as the level of general government debt has been on a declining path, the country’s external vulnerability has improved and the Government has been pursuing a prudent fiscal policy.

The Minister added that the pricing of Hungarian state securities is very favourable, and the market’s perception of Hungary is more upbeat than that of rating agencies.

(Ministry for National Economy)