Hungarian reforms are working: Moody’s has upgraded Hungary’s credit rating outlook from stable to positive. Thus, Hungary has been given a positive outlook by two out of the three largest international credit rating agencies, signalling an impending upgrade.

In its report, Moody’s stressed that the gradual reduction of general government debt will be sustainable in coming years, thanks to the Government’s fiscal policy. Among positive factors the agency also noted that the Government has shown strong commitment to keeping the budget deficit below 3 percent of GDP, further reducing state debt and cutting the share of foreign currency denominated debt within the total stock of debt.

The report also reasoned that the forint conversion of forex loans has significantly reduced the country’s vulnerability to external shocks. This measure may on the one hand bolster household consumption, which – according to Moody’s – may become one of the driving forces of economic expansion in the coming years. On the other hand, thanks also to the MNB’s self-financing programme, forex risks of banks are significantly reduced and this may accelerate lending, another key growth determinant.

In the opinion of Moody’s experts, growth and bank lending are set to be boosted also by the stability of fiscal and economic policies. They highlighted the lowering of bank tax, the EBRD agreement as well as the adoption of the 2016 Budget in spring this year as factors that improved the predictability of economic environment.

As the credit rating agency underlined they also consider it a positive fact that the forint exchange rate – in comparison to other emerging market currencies – has proven to be less volatile, as a result of the marked improvement in the country’s vulnerability to external shocks.

Following international financial institutions and investors, credit rating agencies are also among those organizations that acknowledge Hungary’s economic achievements. Improving employment data, a stable budget, the declining government debt-to-GDP ratio and massive foreign trade surpluses in past years signal that Hungarian reforms are working.

As another positive indicator, the five-year CDS premium fell to pre-crisis levels. Bond yields are at levels which typically characterize countries in higher credit rating categories. International market sentiment has improved significantly and that cannot be left unnoticed by credit rating agencies.

(Ministry for National Economy)