S&P Affirms Hungary BBB- Rating, Stable Outlook

Ratings

S&P Global Ratings affirmed Hungary's BBB- sovereign rating with a stable outlook at a scheduled review on Friday, according to a report by state news wire MTI.

"Hungarian policymakers have shifted to tighter fiscal and monetary settings to narrow the country's elevated twin deficits and level off an overheated economy," S&P said. "We expect the government will remain committed to fiscal consolidation, which will reduce debt as a share of GDP over the next two to three years," it added.

S&P projects marginal GDP growth of 0.1% in 2023 as contracting domestic demand is counterbalanced by increasing exports, supported by FDI. It expects the partial release of Hungary's European Union funding, which is being withheld pending reforms, toward the end of 2023.

Macroeconomic pressures have "largely abated" since a downgrade of Hungary to one notch over the investment grade threshold in January, the rating agency said, pointing to falling inflation, expected to reach the single digits by end-2023, a "marked" contraction of external deficits parallel with a decline in global energy prices, and stabilization and strengthening of the forint's exchange rate.

S&P could upgrade Hungary's sovereign rating if the country's twin deficits are reduced more quickly than expected, or the economic recovery is stronger, allowing a further decrease of fiscal deficits and a steeper decline of state debt.

It could lower the rating if the EU significantly cuts Hungary's funding or the country's energy supply is constrained.

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