Fitch assigns 'BBB+' rating to Hungarian upcoming Eurobond

Ratings

Fitch Ratings yesterday assigned a 'BBB+' rating to Hungary's upcoming € 500 million bond, a re-opening of its floating-rate notes due in 2012. "Hungary's ratings reflect a balance between a relatively wealthy, diversified, EU economy with strong democratic institutions against concerns over large macroeconomic imbalances that have been driven by a significant deterioration in public finances," the ratings agency commented. “Measures already passed by the government and the falling out of some lumpy one-off expenditure items should contribute to a fall in the budget deficit to around the government's target of 6.8% in 2007 (5.1% when pension reforms costs are excluded). In 2008 the underlying balance will be further helped by the reduction of expenditure on motorways and aircrafts (around 1.6% of GDP). Combined with the continuation of the public sector wage freeze and personnel reduction, this should bring the deficit down to around 4.3% of GDP (2.7% excluding pensions),” Fitch said, adding that Hungary’s government is “more likely than not to succeed in narrowing the fiscal deficit in 2007 and 2008.” Success at implementing the outlined fiscal path will be essential to lessening Hungary's external vulnerabilities at a time when the external financing environment could become less favorable. In the meantime, however, Hungary remains vulnerable to any sharp fall in market confidence. An additional depreciation of the forint would further raise the external debt burden and adversely affect some private sector balance sheets in light of the ongoing rapid pace of foreign-currency denominated bank credit growth to the household sector." (Mti-Eco)

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