Fitch Improves Hungary Rating

Fitch Ratings revised the outlook on Hungary’s Long-term foreign- and local-currency issuer default ratings to “positive” from “stable” and affirmed the IDRs at “BBB-”.

Among the key rating drivers to which Fitch assigned a “high” weight were the “marked improvement” in Hungary’s net external debt position, to an estimated 9% of GDP in 2017 from 53% in 2014; and the country’s current-account surplus, which averaged 3.7% of GDP in 2014-2016, MTI reported.

Fitch assigned a “medium” weight to a steady decline in Hungary’s state debt relative to GDP and a reduction in non-residents’ holdings of that debt; an acceleration in GDP growth, to an expected 3.7% in 2017 and 3.5% in 2018, up from 2.2% in 2016, driven mainly by domestic demand but also by recovering investment; and improved banking sector liquidity, profitability and asset quality.

Fitch said that Hungary’s GDP per capita and governance indicators are higher than the “BBB” medians, reflecting the country’s greater economic development and integration with western Europe, and “Doing Business” indicators are also stronger than its peers.

On the other hand, GDP growth volatility has been higher than peers, and unorthodox policy moves in the past and a high regulatory burden have affected private investment, it added.

Fitch noted that polls predict the incumbent ruling Fidesz party will win general elections to take place in April 2018, “suggesting policy continuity”. Fitch also pointed out public tensions between Hungary and the European Union and said a “serious deterioration in the relationship could have potential adverse consequences on the economic outlook and government finances in the medium- to long-term”.