“The main drivers of the rating action are (1) the improvement of the Hungarian operating environment, as reflected in Moodyʼs upgrade of the Hungarian governmentʼs bond rating to Baa3 from Ba1; and (2) the strong correlation between sovereign and sub-sovereign credit risk, reflected in macroeconomic and financial linkages as well as in institutional factors,” the press statement from Moody’s says. 

The rating upgrade and the change in outlook follow similar actions on Hungaryʼs government bond rating late Friday.

According to the ratings agency, Budapest reflects the improvement of the operating environment in Hungary, as reflected by the sovereign rating upgrade. “The rating upgrade also reflects Moodyʼs view that the creditworthiness of Budapest is closely linked to that of the sovereign, as Hungarian local governments depend on revenues that are linked to the sovereignʼs macroeconomic and fiscal performance,” Moodyʼs said. “Almost 70% of Budapestʼs operating revenues in 2015 were from intergovernmental revenues, in the form of shared taxes and central government transfers that are set at the national level,” the press statement added.