Rating agency Standard and Poor's (S&P) maintains Hungary’s long-term sovereign credit ratings at “stable”, American news wire Dow Jones reported on Friday.
S&P affirmed the 'BB/B' long- and short-term foreign and local currency sovereign credit ratings of the country, saying that after a decade of suppressed demand, Hungarian economy was apparently recovering. However mid-term prospects were still blurred by the government’s policy mix and shrinking population, the agency added.
“Government policies, which may boost growth in the short term, (…) impede growth in the medium term", read the S&P analysis in part. Once the impact of cuts to utility bills, public employment programs, credit easing and household debt relief wear off, potential growth in Hungary will weaken to about 1.0%-1.5%. "Unpredictable policymaking, an expansive public sector, a regressive and overly complex tax framework, an unprofitable banking system, and a shrinking population hold back Hungary's economy",
However "the stable outlook reflects our view that the risks to Hungary's creditworthiness are balanced", S&P said.
GDP growth could exceed 3% this year, reaching the level of 2007 by the end of 2015. Growth is chiefly the result of the high funding inflow coming from the European Union, the agency stressed.
S&P expects credit growth to be flat in real terms through 2016, while expecting net exports to perform.
On the debt front, budgetary consolidation “has not materially lowered Hungary's already-high tax burden. Social transfers remain considerably higher than Central Eastern European peers', and recent state acquisitions in the utility and financial sectors suggest a growing, rather than diminishing, public sector”. S&P does not expect public debt to drop below 80% of GDP in the next four years.
The country’s c/a surplus will probably decline in the upcoming four years. However Hungary’s external financing capacity – expected to remain between 4-7% of GDP – will enable it to pay back its external debt.
The recently approved debt relief will not push the bank's capital ratios below the 8% regulatory minimum, but will cause banks to continue withdrawing credit from the economy, S&P reckoned.