Additional measures opposition Fidesz would need to take to keep a tight budget policy are “relatively small”, Fitch Ratings said in a statement on Monday, a day after Fidesz won a two-thirds majority in the second round of Hungary's general elections. Fitch also warned that any “permanent loosening of fiscal policy...will increase negative pressure on Hungary's sovereign ratings”.
Fitch noted that Hungary's new government would inherit a budget deficit that is among the lowest in the EU, due in part to commitments under an IMF-led support package Hungary received in the midst of the crisis. “The additional measures that Fidesz would need to introduce to maintain tight fiscal policy, stabilize the government debt burden and generate cyclical benefits from any economic recovery are therefore relatively small,” Fitch said.
Hungary's general government deficit will probably exceed the government's 3.8%-of-GDP target in 2010, and could be higher than Fitch's 4.2% forecast as Fidesz transfers liabilities of state-owned companies to the general government, but “recognition of one-off liabilities, rather than a loosening of recurrent expenditures, is unlikely to put the IMF program at risk,” Fitch said. “However, a permanent loosening of fiscal policy that fails to stabilize the general government debt burden and set it on a downward path over the next couple of years will increase negative pressure on Hungary's sovereign ratings,” it added.
“The emergence of a strong majority government in Hungary provides the opportunity for the introduction of structural reforms to place the recent improvement in public finances on a sustainable path and increase the economy's growth prospects, both of which are essential to reduce the economy's high public and private sector debt burdens and vulnerability to shocks,” Fitch said.
The Republic of Hungary is rated Long-term foreign currency Issuer Default Rating (IDR) 'BBB' and Long-term local currency IDR 'BBB+' by Fitch. The Outlooks on the Long-term IDRs are Negative. Hungary's Short-term foreign currency IDR is 'F3' and the Country Ceiling is 'A'. (MTI-Econews)