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Fitch outlook revision "not unjustified and not surprising", says City

The revision of Hungary's rating outlook by Fitch Ratings is "not unjustified, nor surprising" given the backdrop of the substantial consolidation package announced by the government earlier this year, but implementation risks remain, London-based emerging markets analysts said on Tuesday.

Fitch said the previous day that it had revised the outlooks on Hungary's long-term foreign and local currency ratings to stable from negative, reflecting the recently announced fiscal policy targets and measures and the increased confidence that Hungary's debt ratios will be put on a downward path.

In a comment released on Tuesday, Barclays Capital said that Fitch is the first major rating agency to halt the negative rating trend for Hungary over the past few months and years.

"The move confirms our view that the risk of a rating downgrade to non-investment grade, which until earlier this year was a real threat, has greatly subsided, (however) we note that S&P and Moody's still rate Hungary ... with negative outlook". The announced fiscal reform measures and the well-received issuance of a total of some €4 billion in Eurobonds, covering Hungary's 2011 external financing needs, have greatly reduced short-term vulnerabilities. Against this background, "we think the move by Fitch ... does not seem unjustified and does not come as a huge surprise", Barclays Capital said.

It added, however, that uncertainties remain regarding the implementation of the announced measures, and any slippage could again bring Hungary's comparatively high debt levels into investors' focus. The source of implementation risk could be a weaker-than-expected growth, which to a large extent lies outside the government's influence given Hungary's high reliance on external demand, Barclays Capital said.

In a separate comment released to investors in London, analysts at Bank of America-Merrill Lynch Global Research said that the outlook revision by Fitch Ratings confirms the recent structural improvements introduced by the government. However, significant implementation risks remain stemming from "still insufficiently tight spending control" against a background of weak fiscal revenue growth and "modest GDP outlook".