Moody’s elevates Hungary from junk to investment grade

The return to investment grade follows similar upgrades earlier this year from the two other big rating agencies: Standard & Poor’s Global Ratings and Fitch Ratings Inc. 

Moody’s identified three key factors in justifying the upgrade:

- The government debt burden, which now benefits from a lower share of foreign currency-denominated debt, will continue to gradually decline;

- Structural economic improvements will help sustain positive growth rates of 2-2.5% in the coming years, supporting economic strength; and

- A significant reduction in external vulnerability improves the resilience of Hungary’s credit profile to future external shocks.

According to Moody’s, the stable outlook reflects the balanced risks to the credit rating over the coming years. The ratings agency said it foresees that the greater predictability in policy seen in the last couple of years will be sustained, resulting in a more stable, growth-friendly policy environment in Hungary than in the past. “At the same time, while we expect some further improvements in the country’s key fiscal and external metrics, in some areas such as the public sector debt burden the country will continue to lag behind its Baa-rated peers,” the press statement from Moody’s says.

The agency has also upgraded, by one notch to Baa3, the long-term issuer rating and to (P)Baa3 the senior unsecured Shelf program rating of the National Bank of Hungary (MNB), the press statement adds, noting that Hungary is legally responsible for the payments on MNB’s bonds. The outlook on the rating is stable, in line with the outlook assigned to the governmentʼs rating, Moody’s added.

Hungary’s long-term foreign currency bond ceiling has been raised to Baa1 from Baa2, as well as the long-term foreign currency bank deposit ceiling to Baa3 from Ba2, Moody’s announced. “Similarly, the short-term foreign currency deposit ceiling was raised to P-3 from NP, while the short-term foreign currency bond ceiling remains unchanged at P-2,” the statement added. The long-term local currency bond and deposit ceilings were raised to Baa1 from Baa2.

Hungary ‘satisfied’

Hungary’s Minister for National Economy Mihály Varga, giving a press conference on the upgrade Saturday morning, said that Moody’s decision was an acknowledgement that the economy is progressing “on the right track,” Hungarian news portal hvg.hu reported. “We are noting with satisfaction that all the big international rating agencies have placed Hungary into investment grade,” the minister said.

However, Varga cautioned that the upgrades should not be overestimated because markets had already started treating Hungary this way, and thus the rating agencies had only followed the processes.

The ministry has started calculating the possible positive effects of the upgrade, the minister said, adding that he believes the decrease in state debt could speed up.

Varga also commented on the residency bonds program, without hinting at anything definitive about its possible future, according to the hvg.hu report. “The government is making a decision on the possible shutdown of residency bonds next week, considering the upgrades,” he was reported as saying. Cabinet Chief János Lázár announced last week that the program would be brought to an end, though just a day later Varga said the government should not stop selling the bonds. 

A full list of affected ratings by Moody’s can be seen below:

Upgrades:

Issuer: Hungary, Government of

- LT Issuer Rating, Upgraded to Baa3 from Ba1

- Senior Unsecured Conv./Exch. Bond/Debenture, Upgraded to Baa3 from Ba1

- Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba1

- Senior Unsecured Shelf, Upgraded to (P)Baa3 from (P)Ba1

Issuer: National Bank of Hungary (MNB)

- LT Issuer Rating, Upgraded to Baa3 from Ba1

- Senior Unsecured Shelf, Upgraded to (P)Baa3 from (P)Ba1

Raises:

Issuer: Hungary, Government of

- Country Ceiling Bank Deposit Rating, Raised to Baa3 from Ba2

- Country Ceiling Bank Deposit Rating, Raised to P-3 from NP

- Country Ceiling Bond Rating, Raised to Baa1 from Baa2

Unaffected:

Issuer: Hungary, Government of

- Country Ceiling Bond Rating, Remains at P-2

Outlook Actions:

Issuer: Hungary, Government of

- Outlook, Changed To Stable From Positive

Issuer: National Bank of Hungary

- Outlook, Changed To Stable From Positive

Earlier this year

In May of this year Fitch Ratings Inc. became the first agency to improve Hungary’s sovereign debt rating from “junk” status to “investment grade” since Hungary was downgraded a number of times five years ago. Few analysts at the time had predicted the move. Standard & Poorʼs Global Ratings followed suit in September, raising its long- and short-term foreign and local currency sovereign credit ratings for Hungary to ‘BBB-/A-3ʼ from ‘BB+/Bʼ. S&P’s upgrade was also unexpected. 

While Varga said both upgrades were an acknowledgment of improvements in the Hungarian economy, London-based analysts at Japanese firm Nomura said after the Fitch upgrade that it was a “distraction from the underlying narrative of a much weaker underlying economy with very low potential growth and a policy designed to prop up current growth in the interim.”