In a report on the CEE-8 region, released in London, the ratings agency said that Hungaryʼs combined current and capital account surplus of around 10% of GDP – compared to deficits of 8-10% before 2008 – reduces the countryʼs reliance on external financing, because it accumulated a sizeable foreign exchange buffer of around 30% of GDP at end-2015.
Hungaryʼs external debt burden has also fallen substantially, due to deleveraging in the banking and corporate sectors, helped by the conversion of foreign-currency loans, according to the report. The foreign-currency share of government debt has also fallen sharply by encouraging greater investment in government securities by domestic investors, Moodyʼs said.
The significant improvements to Hungaryʼs external vulnerability, together with its improved fiscal and growth metrics, has led to some evidence of safe-haven flows despite its still large external debt burden and high borrowing needs which constrain the sovereign rating.
Also, the decline in the high share of non-resident investors in the domestic debt market reduces Hungaryʼs vulnerability to a sudden stop in capital flows. Hungaryʼs domestic equity market was one of the best-performing stock markets in 2015 compared with the rest of emerging Europe, and returns have continued to be robust so far in 2016. Additionally, the forint, together with the Romanian leu, has been one of the best-performing emerging market currencies, strengthening more than 1.5% against the euro in the first two and a half months of 2016, Moodyʼs said in the report.
Moodyʼs rates Hungaryʼs government debt at Ba1, one notch below investment grade, but with a positive outlook.
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