Moodyʼs Investors Service has changed the outlook on the Government of Hungaryʼs ratings to positive from stable, while also affirming the long-term issuer and senior unsecured debt ratings at Baa3, and Hungaryʼs senior unsecured shelf program ratings at (P)Baa3, according to a press release sent to the Budapest Business Journal.
Moodyʼs says that the key drivers for the change in outlook to positive are the strong recent and prospective performance of the economy relative to Baa3- and Baa2-rated peers, with related improvements to the domestic and external debt position. While strong economic growth and government debt reduction have inevitably been derailed by the coronavirus crisis, the impact on Hungaryʼs credit profile has been more limited than elsewhere.
Moodyʼs expects that the improvement in the governmentʼs fiscal and debt metrics seen since the last rating action in November 2018 will resume from 2021, and that the reduction in external vulnerabilities since 2012 will be sustained.
The agency adds that the Baa3 rating incorporates a number of credit challenges, such as the strong dependence of the economy on manufacturing and the related exposure to Germanyʼs automotive sector; the fact that the government debt burden remains above the median of similar-rated peers; and some weaknesses in the institutions and governance framework, mainly in relation to civil society, and the at times confrontational relationship with the European Union.
In a related rating action, Moodyʼs also changed the outlook on the National Bank of Hungary (MNB) to positive from stable and affirmed its long-term issuer and senior unsecured shelf program ratings at Baa3 and (P)Baa3, respectively. The Government of Hungary is legally responsible for the payments on MNBʼs bonds, and MNBʼs ratings and outlook are therefore in line with those of the government.
Hungaryʼs long-term foreign-currency bond and deposit ceilings remain unchanged at Baa1 and Baa3, respectively. The short-term foreign-currency bond and deposit ceilings remain unchanged at P-2 and P-3, respectively.
Hungaryʼs long-term local-currency bond and deposit ceilings also remain unchanged at Baa1.