S&P revises outlook on Hungary to negative, ratings affirmed

Standard & Poor's Ratings Services revised its outlook on its long-term ratings on Hungary to negative from stable. At the same time, S&P affirmed its "BB/B" long and short-term sovereign credit ratings. In a release on Thursday, S&P said it also revised the transfer and convertibility assessment to "BBB minus" from "BBB", reflecting what it views as the interventionist nature of the Hungarian government. S&P also revised to negative from stable its outlooks on the "BB" long-term issuer credit rating on the National Bank of Hungary. "The outlook revision reflects our view that the predictability and credibility of Hungary's policy framework has continued to weaken. This is partly due to policy decisions that, in our view, raise questions about the independence of oversight institutions, and hence their credibility. For example, recent governance changes at the National Bank of Hungary and amendments to the constitution could undermine Hungary's institutional effectiveness and the quality and predictability of policy making," S&P said. "These changes follow the introduction over the past three years of policy measures we consider unorthodox - in particular those that target some services sectors through the imposition of tax hikes and various levies. These measures could erode Hungary's medium-term growth potential by reducing banks' willingness to lend and companies' propensity to invest. In our opinion, this could eventually undermine the government's efforts to stabilize and reduce general government debt. Moreover, we consider that downside risks to Hungary's creditworthiness may also increase as the domestic economic environment weakens," the ratings service said. "Despite the uncertain economic outlook, we anticipate that the government will meet its objective of keeping fiscal deficits below 3% of GDP over 2013-2015, using the accruals-based European (ESA 95) accounting standard. That said, we anticipate that from 2014 continued slow economic growth will make it increasingly difficult for the authorities to keep the general government deficit in line with their projections", S&P said.