Standard & Poor's downgrading means that Hungary is still within the category of investment grade, but only by a narrow margin.Continue reading
Fitch Ratings has affirmed Hungary’s long-term foreign-currency issuer default rating. The international rating agency said it expects the Hungarian economy to grow at an average rate of three percent in the coming years.
Fitch Ratings maintained its ‘BBB’ rating on Hungarian sovereign foreign currency debt, based on the decision announced in London Friday night. In an analysis accompanying the rating affirmation, the rating agency said that Hungary’s ‘BBB’ rating is underpinned by strong structural indicators, investment-led sequential economic growth, and robust net working capital inflows compared to peer economies.
The firm also reaffirmed its sovereign rating outlook, which has been negative since January, but the ‘BBB’ rating still indicates that Fitch Ratings considers Hungary to be in the investment grade category.
The analysis highlights that the external position of the Hungarian economy has improved significantly this year as a result of lower energy import costs. The rating agency also stressed that Hungary was able to avoid rationing natural gas supplies during the last heating season, although the country’s heavy dependence on Russian energy supplies remains a risk factor.
Fitch Ratings attributes the negative outlook on the rating to credit risks around macroeconomic policy. The rating agency believes that the sectoral special taxes on excess profits have led to a high regulatory burden.
Inflation is the highest in Hungary in the European Union, price caps have not been effective while raising the cost of public finances, and the transmission function of monetary policy is hampered by targeted caps on interest rates on individual mortgages, according to Fitch Ratings’ London analysts.
However, the rating agency stresses that it still expects Hungary to reach an agreement with Brussels on EU disbursements, although the timing and size of these disbursements remain uncertain.
The agency forecasts twelve-month inflation to slow to eight to ten percent by the end of this year, averaging five percent for the whole of 2024, and returning to close to the central target of the Hungarian Central Bank at 3.1 percent in 2025.
Fitch Ratings also expects the public debt-to-GDP ratio to fall to 68.1 percent this year from 73.3 percent last year, and to fall below 60 percent by 2027, mainly due to primary government surpluses.
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