Fitch Ratings keeps Hungary at BB+ long term

Ratings

Fitch Ratings on Wednesday affirmed Hungary’s long-term foreign currency rating at “BB+” with stable outlook, and its local currency rating at “BBB-”; the outlooks on the long-term ratings are stable, with the country ceiling affirmed at “BBB” and the short-term foreign currency rating at “B,” the agency said in a report.

Of the three big ratings agencies including Moody’s Investors Service, Standard and Poor’s and Fitch Ratings, the weakest “BB” rating on Hungary is maintained by Standard and Poor’s.

Fitch said in the rating action commentary that it forecast the general government deficit would rise somewhat in 2013-2015 but remain slightly below the 3%-of-GDP European Union threshold, keeping it in line with the medians of the “BB” and “BBB” categories.

“The government continues to demonstrate a strong commitment to containing the deficit below 3% of GDP, offsetting a degree of implementation risk in the 2014 budget in Fitch’s view,” the ratings agency said.

Fitch noted that Hungary’s well-developed domestic bond market, substantial government deposits and central bank foreign exchange reserves, and fiscal discipline had helped the country maintain access to international financial markets throughout periods of uncertainty in 2013.

But it said high levels of foreign currency-denominated private and public sector debt make Hungary “vulnerable to adverse external shocks and to potential policy missteps.”

Fitch said recent government initiatives to boost credit for SMEs would likely contribute to a recovery in GDP growth in 2014-2015, alongside stronger growth in Hungary’s key EU trading partners. But it added that “lingering uncertainty over economic policy and on-going private sector debt deleveraging constrain the Hungarian economy’s medium-term growth potential.”

Fitch said a positive rating action could be triggered by successful fiscal consolidation, a sustained reduction in external indebtedness, measures to enhance the business and investment environment, including greater policy stability, resulting in an upward revision to Fitch’s assessment of the medium-term growth outlook.

It said risk factors for a negative rating action were sustained fiscal slippage that endangers debt sustainability, policy missteps that pose risks to the inflation and currency outlook, a global shock to investor sentiment, and a downward revision to Fitch’s assessment of the medium-term growth outlook.

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