Reform measures launched by the Government in 2010 have borne results, and these are reflected in the upgrade by Fitch Ratings, Minister for National Economy Mihály Varga said at a press conference.
As Mihály Varga pointed out, when they began to reorganize the economy in 2010, they were aware that they would first meet downgrades before they would see any upgrades. But this announcement shows that reforms have been successful. The rating agency based their decision to restore the country’s debt to investment grade on improving fiscal processes, falling state debt ratios, favourable external balance figures and the improving conditions within the banking sector, he added.
This is good news for Hungarians, as the state will thus spend less on servicing debt, and more money can be disbursed for investment, tax reduction and wage hikes, he stressed.
In the next one, one-and-a-half years, savings due to lower interest rates may total HUF 40-60bn, provided another rating agency also upgrades Hungary’s government debt. Mihály Varga noted it was expected that the two other major rating agencies might make a similar decision, as the “big three” tend to move together, and he would “find it strange” if the rating of one agency was different from that of another.
Before they invest in Hungarian government bonds, large investment funds are obliged to wait until at least two out of the big three agencies upgrade the country’s debt to investment category, he said.
Other positive factors that were instrumental in the decision of Fitch included falling fiscal deficits, rising tax revenues and the increasing amount of domestic resources in the servicing of state debt. The current account has posting surpluses that are substantial even from a European perspective for years, and the absorption rate of EU funds was also outstanding, with 108 percent.
In the analysis released together with the decision, Fitch notes that bank sector conditions have also improved significantly, banks’ external exposure has been reduced, and the forint conversion of forex loans as well as the reduction of the bank tax rate was also behind this decision, Mihály Varga added.
The further decline of external debt levels may contribute to a positive decision, but prospects can also be improved by further cutting government debt and registering higher economic growth. Data from the first quarter show that there is “a lot to improve and help” in this field.
As far as the market is concerned, he stressed, the country had long been in investment category. When yields on bonds with long tenors are higher than those of Poland, a country with a credit rating three notches above ours, “there is nothing to add”, he said. But the opinion of rating agencies is important for the re-financing of maturing debt.
Responding to a question on his worries of a potentially too strong forint, the Minister stressed that in the short term exchange rates would be less significant in affecting the performance of the economy. A part of government debt is still denominated in foreign currencies, and forint appreciation might reduce this. On the other hand, the volume of exports grew by 9.5 percent year-on-year in February, despite a 310 EUR/HUF rate. He said he was not afraid of a stronger forint, as the Hungarian economy and exporters had the potential to be successful on foreign markets even under such circumstances.
(Ministry for National Economy)
