Following the upgrade by Fitch Ratings in May 2016, S&P’s decision to restore Hungary’s status in investment grade category has been the direct consequence of the country’s economic performance, Minister for National Economy Mihály Varga said, commenting on the ratings agency’s announcement. It is another sign, he added, that the transformation of the Hungarian economy has been successful.
As the Minister pointed out, S&P was the second rating agency at the end of 2011 to downgrade Hungary, placing it in junk category, and it had in effect cut off the Hungarian government securities market from investors which have not been allowed to invest in such assets. The achievements of the Hungarian economy and market valuations would have warranted this move some years ago, as country risk premia and bond yields had almost been on a par with those of investment-grade countries. This upgrade has been in the air for years. There was practically no macro-economic indicator regarding which the country has not achieved a positive trend reversal, he stressed. Among these he mentioned GDP growth, fiscal balance, public finances, the size and structure of public debt as well as labour market statistics.
In the announcement, S&P’s analysts stressed that compared to their former prognosis, published in March 2016, Hungary’s growth outlook has improved: in the period 2016-2019, the country’s GDP growth is expected to average 2.5 percent instead of the prior estimate of 2 percent annually. It has also acknowledged that the positive balance of payments, the lower share of forex liabilities within total state debt and the MNB’s self-financing scheme have, among other factors, reduced the vulnerability of the country and the financial sector to external risks. The company has also praised public finances: extra revenues have cut fiscal deficit and created manouvering room for stimulus measures. Fiscal stimulus, they added, may be carried out without jeopardizing the targeted deficit figure of around 2 percent of GDP. S&P is also anticipating that government debt is set to decline further: in line with the expectation of the Ministry for National Economy, the government debt-to-GDP ratio is seen to fall to below 70 percent by 2019.
As Mihály Varga added, the Government is aiming not only to maintain the current positive processes but to achieve even more improvement within the economy.
(Ministry for National Economy)
