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Hungary will avoid junk category, London analysts say

Hungary will probably avoid being junk-rated, said London-based emerging market analysts after the government announced its fiscal adjustment package yesterday.

It is positive that the Hungarian government “actively addresses” long-term budgetary problems, the Barclays Capital commented the measurements, adding that in the short term, the package has lowered the risk of Hungary being junk-rated by the leading credit rating institutions.

However, Barclays Capital analysts called some elements of the package too optimistic. Such elements are the 4-6% annual growth rate of the economy and the creation of some 300,000 jobs until 2014.

Analysts at Bank of America-Merill Lynch said that the package shows the government’s commitment to the budgetary reforms and lowering Hungary’s state debt. At the same time, BofA-Merill Lynch analysts noted that there are serious risks in execution, but there is a good chance to lower the state debt to below 60% of GDP by 2016, given that the cyclic recovery of the Hungarian economy will continue.

Goldman Sachs analysts have reached the same conclusion. According to them, in order to reduce Hungary’s state debt within the given timeframe, yields of government bonds needs to be lowered significantly. Also, a continuous economic growth and a stable forint exchange rate are also necessary in order to reach the target, the analysts concluded.