At the same time, in an annual credit analysis published late Thursday, Moodyʼs said the countryʼs high state debt “remains a constraint.”

Moodyʼs research, “Government of Hungary -Baa3 stable, Annual credit analysis,” is an update to the markets and does not constitute a rating action, the company notes in a press release sent to the Budapest Business Journal.

Moodyʼs said it expects Hungarian economic activity to remain buoyant through the current cyclical upswing, and forecasts GDP growth of 3.5% for 2017 and 3.1% for 2018, below other forecasts. (The Hungarian governmentʼs own forecasts are for growth of 4.1% and 4.3% in 2017 and 2018, respectively.)

Despite Hungaryʼs current strong economic performance, its long-term growth prospects are constrained by several factors, including risks associated with the tightening labor market given acute skills mismatches and the countryʼs strong reliance on European Union (EU) funds, which could potentially be smaller in the next EU funding cycle, Moodyʼs says.

Hungaryʼs moderate fiscal strength reflects years of deficit spending, which has resulted in a large government debt burden, which amounted to 73.9% of GDP in 2016.

Cited by state news wire MTI, Moodyʼs senior analyst Evan Wohlmann, a co-author of the report, noted Hungaryʼs sizeable current account surpluses and policies that have sharply reduced the foreign currency share of state debt.

Ahead of parliamentary elections due in April 2018, Moodyʼs expects increased uncertainty around the governmentʼs near-term fiscal policy. However, the authoritiesʼ commitment to maintain deficits below 3% will support a sustained, but gradual, reduction in the general government debt ratio in the coming years, reaching around 71% of GDP in 2018.

Upward pressure on Hungaryʼs rating could stem from an improvement in the countryʼs economic and fiscal metrics that results in a faster than expected reduction of the public debt burden closer to the median of similarly rated peers, says Moodyʼs. Structural reforms that stimulate private investment, improve non-cost competitiveness and boost potential growth in the economy would also be credit positive, the ratings agency added.

Conversely, Moodyʼs notes that downward pressure on the governmentʼs bond rating could arise following signs of a weakened policy commitment to contain the budget deficit or achieve primary surpluses to ensure a continued reduction in the debt burden. In addition, the introduction of policy measures that would weaken the growth outlook, in turn threatening the downward path of the governmentʼs debt ratio, would also be negative, Moodyʼs added.