"Definitely hope" for a Hungarian upgrade says Fitch

By bne IntelliNews January 28, 2016

Hungary should improve the business climate and keep the budget on track to win an upgrade, Fitch Ratings' lead analyst on the sovereign said on January 27.

Arnaud Louis said that there is "definitely hope" for an upgrade. The comment comes ahead of a first round of scheduled reviews by the three major ratings agencies in March and May. Analysts at investment banks say they fully expect Hungary to finally escape "junk" status in 2016, close to five years after falling from investment grade.

“Given what we have seen in Hungary over the past two years we wanted to see more track record of the government keeping its line on improving the business environment, track record on fiscal discipline,” Louis said, according to Reuters. “The rating is on a positive outlook so definitely there is hope."

Fitch’s latest credit review of Hungary in November saw the agency affirm the country’s long-term foreign Issuer Default Rating (IDR) at BB+ - one notch below investment grade. An upgrade requires greater policy stability and predictability, along with an improved business environment, it said at the time. In addition, a continued reduction in external indebtedness and a falling government debt ratio could trigger positive action.

Having cut the deficit to below the EU’s threshold of 3% of GDP and gradually relaxed its controversial sectoral taxes, Budapest is clearly close to its goal. While Hungary has struggled to reduce headline state debt quickly, it has been on a downward trend.

More to the point, as several analysts pointed out to bne IntelliNews recently, the structure of that debt has been shifted to reduce exposure to global markets. They suggest it would be something of a shock should Hungary not earn an upgrade in 2016.

The sovereign lost its investment grade at the three major credit rating agencies in 2011 and 2012, as long-winded talks with the IMF on a bailout broke down. The government has spent the time since arguing an escape from junk is due, and has pushed those claims harder over the past couple of years citing strong economic fundamentals.

The government's attitude towards businesses has started to improve and it began cutting its tax on banks this year, Louis noted. “We took it as an important signal that the business environment is improving in Hungary. That was a clear positive signal," he added. Fitch is due to review Hungary’s rating on May 20.


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