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On Friday, Moody’s Investors Service upgraded its outlook on Hungary’s “Baa3” investment grade sovereign rating from current stability to positive. The company also reaffirmed its sovereign rating.
The international credit rating agency justified, among other things, the improvement in Hungary’s rating outlook announced in London on Friday night, which although the coronavirus epidemic is expected to have a significant negative impact on the Hungarian economy, the impact on economic and financial strength it is unlikely to be as pronounced as in other parts of the European Union.
According to Moody’s forecast on Friday, Hungary’s gross domestic product (GDP) will fall 5.5 percent in real terms this year and grow at a rate of around 4 percent next year.
The company expects the growth rate of the Hungarian economy in real terms to return to the level of growth potential from 2022, and the value of GDP will increase by around 3.5 percent on average annually in the period between 2022. and 2024.
Moody’s stated that the main factor to improve the positive outlook is that the Hungarian economy is also “Baa3” and better than the economies rated “Baa2”. it has shown strong performance in the recent period and is expected to continue. All this is accompanied by an improvement in the position of internal and external debt.
Although strong economic growth and the process of declining public debt have inevitably been derailed by the coronavirus crisis, this has had a more limited impact on Hungary’s debt profile than other countries, according to the rating analysis. credit.
Moody’s expectation is that Starting in 2021, the improvement process that has been observed in the Hungarian budget and public debt indicators since the last review of the debt rating carried out by the company in November 2018 will resume.On November 23, 2018, Moody’s reaffirmed the then stable rating of Hungary’s sovereign debt at the current level of “Baa3”.
In its analysis of Friday’s announcement to improve the outlook, the company said it also expects that the notable decrease in the external vulnerability of the Hungarian economy since 2012 will remain permanent.
According to the analysis, since the rating was confirmed in November 2018, the Hungarian government has made further progress in implementing its strategy of consolidating public finances and reducing debt, supported by strong sustained growth momentum.
Moody’s recalls that In 2018 and 2019, the average annual growth rate of Hungary’s gross domestic product reached 5% in real terms, and in the five-year period ending in 2019, the public debt-to-GDP ratio fell from 76.2% 66.3%.The credit rating agency expects the Hungarian public debt index to rise by ten percentage points to around 76 percent as a result of the coronavirus crisis. However, he said he expected sustained growth momentum and a commitment to prudent fiscal policy that would again reduce the current upward path of the public debt index.
Moody’s predicts a slightly more gradual rate of deficit reduction than expected by the Hungarian government, but still expects the general government deficit to fall to 3 percent of GDP by 2024 from 7.3 percent this year.
The credit rating agency emphasizes that it expects the rate of decline in the Hungarian government debt index to be among the fastest in the field of sovereign debtors “Baa3” and “Baa2”, even if this scenario materializes. According to Moody’s forecast, the Hungarian government debt ratio will decline back to the level measured last year by 2024. Although Hungary’s public debt burden will remain higher than the average level of economies rated “Baa2 / Baa3 “, Moody’s expects the gap to narrow starting in 2021.
The public debt tolerance capacity of the Hungarian economy is quite strong, the relationship between interest payment obligations and income has been below the average level of economies with similar ratings since 2015, and the general government deficit is it has held steady at around 2% of GDP in 2015-2019, Moody’s said. in your analysis.
The company highlights that this is a significant improvement, since the average annual deficit for the 2009-2014 period was 3.7 percent.
Moody’s said the Hungarian sovereign debt rating could improve if indicators for the Hungarian economy indicated a rapid recovery from the crisis, as expected, and if this, together with policy measures, reversed the public debt index.
Moody’s Investors Service’s current rating of Hungarian sovereign debt “Baa3” corresponds to “BBB minus” in the methodology of the other two global credit rating agencies, Fitch Ratings and Standard & Poor’s.
Last year, both Fitch and S&P raised Hungary’s long-term debt rating to “BBB”, thus Moody’s maintains Hungary’s rating one notch lower than the other two companies.
However, if you turn the positive outlook you just provided into an upgrade from Moody’s, that difference will disappear.
In February, S&P also improved the outlook for the Hungarian government debt rating from previously stable to positive, mostly justifying the move with unexpectedly strong growth in the Hungarian economy. However, on April 28, he changed the outlook back to the old stable, in particular by justifying the move with the expected economic effects of the coronavirus epidemic.
The outlook for Fitch’s Hungarian rating is also stable, so Moody’s is now the only one of the three major credit rating agencies that has a positive outlook on Hungary’s sovereign debt rating.
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