D&B rates Hungary as moderately risky with improving trend.

By bne IntelliNews February 6, 2014

Hungary’s economy is rated as moderately risky and the country's overall risk profile has been on an improving trend, US commercial information and analysis company Dun & Bradstreet (D&B) said in its February 2014 RiskLine report. The rating (DB4c) implies a significant uncertainty over expected returns.

According to the report, the legal barriers to entry into the Hungarian market are low in theory but higher in practice. The government is imposing barriers to entry, such as price controls, as well as windfall taxes on foreign firms operating in strategic sectors (such as utilities and banking). The authorities have also approved restrictions for foreign citizens to acquire real estate and farmland. 

Considering that opinion polls give the ruling Fidesz party a clear lead over any of its rivals, D&B believes that the party would win the next general elections scheduled for April 6 and PM Viktor Orban will retain his post. This would imply continuation of the unorthodox policy mix of “free-market capitalism with statism, coporatism and Hungarian nationalism”, which however has had unexpected success in reviving the economy at the cost of squeezing the profit margins of foreign firms operating in strategic sectors (such as banking, utilities and retail) and discriminated against foreign companies.

D&B believes also that the main unknown is whether Fidesz can retain its two-thirds majority in parliament, which currently allows it to make changes to the constitution to fit the government’s goals.

Political stability could also be tested by a controversial EUR 10bn deal that the government signed with Russia for two new reactors at country’s sole nuclear-power plan at Paks.

The DB risk indicator provides a comparative, cross-border assessment of the risk of doing business in a country and encapsulates the risk that country-wide factors pose to the predictability of export payments and investment returns over a two year time horizon.

The indicator is a composite index of four over-arching categories: political risk, commercial risk, external risk and macroeconomic risk. It is divided into seven bands, ranging from DB1 through DB7.

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