Standard & Poor's downgrading means that Hungary is still within the category of investment grade, but only by a narrow margin.Continue reading
Despite the dangerous international environment, Japan’s R&I credit rating agency has affirmed Hungary’s BBB+ rating, the Finance Minister announced on his Facebook page on Monday. Mihály Varga stressed that the institute is positive about the stability of Hungary’s financial system and the reduction of public debt.
The rating agency expects the Hungarian economy to avoid recession this year and to return to a higher growth rate next year. The government will continue to improve its balance indicators this year, reduce the budget deficit and lower public debt, Mihály Varga emphasized.
The Finance Minister recalled that
the three major international credit rating agencies, in addition to the Japanese rating agency, also recommend Hungary for investment, and that they maintain a two notch higher rating now than 10 years ago.
Moody’s upgraded Hungary last September and confirmed its rating in March this year, maintaining the investment grade of ‘Baa2’ and a stable outlook for the country.
Fitch Ratings confirmed Hungary’s ‘BBB’ credit rating in January but changed the country’s rating as investment grade from a stable outlook to a negative outlook due to the dangerous international environment.
At the end of January, S&P Global Ratings (formerly Standard & Poor’s), rated Hungary as well, and although the country remained in the investment grade category, it was downgraded at the same time with Standard & Poor’s changing Hungary’s ‘BBB’ rating to ‘BBB-‘. The decision was mainly motivated by inflation, the unpredictable international economic environment, and the European Commission’s delay of EU funds.
After Standard & Poor’s credit downgrade, the Hungarian government has reacted by outlining a positive vision for the future. The Minister for Economic Development said Hungary could soon be upgraded, while the Finance Minister said the Hungarian economy could grow above 4 percent next year. However, these are optimistic assessments and will come to fruition only if 2023 will not produce further major unexpected negative factors such as the global pandemic and the war in Ukraine were.
There are two main factors in Hungary’s ratings that discourage it from being placed in higher categories. Apart from withholding EU funds and the dispute with the European Union, the other major problem is the level of public debt, which is currently still above 70 percent of GDP.
The government is aware of this problem, and both the Finance Minister and the Minister for Economic Development have repeatedly said that they aim to reduce the public debt further this year, but the question is how much room for maneuver there is in the current economic and global political environment. However, there are some encouraging signs, such as the fact that that public debt has decreased from 76.8 percent down to 72.9 percent last year. At the same time, the government expects the public debt as a share of GDP to fall from 72.9 percent in 2022 to 69.7 percent in 2023.
Featured photo via Pixabay
