Are you sure?

Hungaryʼs credit profile supported by strong growth - Moodyʼs

Hungaryʼs credit profile (Baa3 stable) is supported by strong economic growth, a commitment to lower fiscal deficits and the government debt burden, and a significant and sustainable reduction in external vulnerabilities, Moodyʼs Investors Service says in a new report.

One of Hungaryʼs key credit challenges is its still sizable public debt, which stood at 70.2% of GDP at the end of 2018. Moodyʼs says that it expects that the general government debt ratio will continue to decline as Hungaryʼs Fundamental Law requires the debt burden to fall each year until it dips below 50% of GDP.

"We expect that strong nominal GDP growth will support a steady decline in government debt to around 64% of GDP by 2021," says Steffen Dyck, a Moodyʼs Vice President - Senior Credit Officer and the reportʼs co-author. "Challenges to longer-term growth beyond 2021 stem from a tight labor market, skills mismatches and slowing inflows of EU funds."

Moodyʼs forecasts that growth will remain robust at around 3.2% in 2020 and 2021, despite slowing from recent heights.

The rating agency adds that a further improvement in economic and fiscal metrics that results in a significant reduction of the public debt burden closer to the median of similarly rated peers would be positive for the credit profile.

Structural reforms aimed at improving non-cost competitiveness, which helps boost potential growth in the economy, would also be positive, the report adds.

On the other hand, Moodyʼs says that signs of a weakened commitment to containing the budget deficit or achieving primary surpluses to ensure a continued reduction in the debt burden would be negative. In addition, the introduction of policies that would weaken the economic growth outlook would also be negative.