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Hungary's rating outlook raised to stable By Standard & Poor's - extended

Standard and Poor's Ratings Services announced on Thursday that it revised its outlook on the sovereign credit ratings on the Republic of Hungary to stable from negative due to progress in fiscal consolidation.

At the same time, the 'BBB+' long-term and 'A-2' short-term ratings were affirmed. „The outlook revision reflects the progress in pushing forward legislation and measures required to stabilize Hungary's rapidly rising general government debt burden," said Standard and Poor's credit analyst Kai Stukenbrock. „Years of fiscal profligacy have seriously undermined the credibility of fiscal policy, culminating in an expected general government deficit of 9.8% of GDP this year." Following the general elections in April 2006, however, the government's candid approach to the large fiscal challenges, as well as the demonstrated determination to implement the impressive consolidation agenda should ensure that fiscal targets will be met, at least for the next two years. As a consequence, we now expect that the government will manage to push down the general government deficit to 4.3% of GDP by 2008, in line with Hungary's convergence program targets.

As a consequence, the government debt-to-GDP ratio will peak at 71% in 2008, before embarking on a downward path again. Eurozone accession is still not expected before 2014, however, due to the time required to achieve a sufficient and sustainable reduction in government deficits beforehand. The stable outlook reflects Standard and Poor's expectation that the government will successfully manage to stabilize public finances and halt the rise in public debt as of share in GDP beginning in 2008. This will ease the imbalances and risks posed by both the state of public finances, as well as by high current account deficits. „A departure from the government's current fiscal consolidation plan would quickly lead to renewed and strong downward pressure on the ratings," said Standard and Poor's credit analyst Kai Stukenbrock. „We currently assign a low probability to such a scenario, but this probability might increase as general elections in 2010 draw nearer." (Mti-Eco))