Fitch Ratings returns Hungary to investment grade

Published at: 24/05/2016 03:15 pm

Fitch Ratings returns Hungary to investment grade

Fitch Ratings returned Hungary to investment grade as it upgraded the sovereign to BBB- from BB+ with a stable outlook. Fitch is the first of the three major ratings agency to offer the country an escape after close to five years in junk. The return to investment grade is the latest stage in the healing process for Hungary’s $120 billion economy, which needed an International Monetary Fund bailout in 2008.

As the economy slid into a recession, the government nationalized $11 billion of private-pension assets and introduced Europe’s highest bank levy. The government has since rid households of burdensome foreign-currency loans, narrowed the budget deficit and trimmed the bank tax. Hungary will need a similar second upgrade from either Moody’s Investors Service or S&P Global Ratings to lure funds that hold investment-grade debt. Such a move would cut Hungary’s debt-service costs by as much as 60 billion forint ($214 million) in the next 12 to 18 months, Economy Minister Mihály Varga was quoted by Bloomberg news agency. The Fitch Rating’s decision is a very important and clear message for those, who are planning to obtain Hungarian residency by investment. According to Mihály Varga, the upgrade by Fitch is also an evidence that the economic restructuring in the country has been a success and that the Hungarian reforms are working. Varga also said that the upgrade by Fitch is an acknowledgement of improving fiscal developments, falling public debt, a favorable current account balance and the improving situation of the banking sector, state news agency MTI reported.

Fitch said in a statement that tighter fiscal policy has been consistent with a gradual decline in government debt from a high level, while the government deficit narrowed to 1.9% of GDP in 2015 from 2.3% in 2014. The banking sector’s situation has also improved, the rating agency noted, referring to a cut in Hungary’s high tax on lenders at the start of the year. While the analysts noted the raised target for the deficit – moving from 2% this year to 2.4% in 2017, a year ahead of elections – they also pointed out that Hungary’s external vulnerability has vastly reduced over the past few years. While the Fidesz government has struggled to quash overall state debt, it has worked tirelessly to reduce the ratio of external debt. The combination of high current account surpluses, high EU fund inflows, banks’ external deleveraging, the self-financing program of the Hungarian National Bank (Magyar Nemzeti Bank), which aims to reduce the country’s external vulnerability and foreign currency mortgage conversion have contributed to a sharp improvement in Hungary’s external balance sheet and reduction in vulnerability, Fitch said in a statement. The agency also forecasts that government debt will slowly decline in the medium term” and noted that the cut in bank tax from 2016 illustrated the authorities’ commitment to improve the operational environment, and no new adverse bank legislation is likely to be introduced. (


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