Fitch affirms Hungary’s junk rating, keeps outlook stable.

By bne IntelliNews December 12, 2013

Fitch Ratings has affirmed Hungary's long-term foreign and local currency Issuer Default Ratings (IDRs) at BB+ and BBB-, respectively, and maintained a stable outlook, the ratings agency said in a statement. The ratings on Hungary's senior unsecured foreign and local currency bonds have also been affirmed at BB+ and BBB-, respectively. In addition Fitch has also affirmed the country ceiling at BBB and Hungary’s short-term foreign currency IDR at B.

The ratings affirmation reflects the government's commitment to fiscal discipline which, howerver, contrasts with unpredictable economic policies that contrain growth.

Hungary’s successful fiscal consolidation efforts have already earned the country an exit from the EU's Excessive Deficit Procedure. The government’s commitment to contain the budget deficit below 3% of GDP, offset a degree of implementation risk in the 2014 budget in Fitch's view.

Along with the fiscal discipline, Hungary’s well developed bond market and substantial reserves helped the country to maintain access to international financial markets throughout periods of uncertainty in 2013.

On the other hand, Fitch believes that Hungary’s fiscal discipline contrasts with unpredictable economic policies, especially with respect to the banking and utilities sectors. Uncertainty over economic policy and on-going private sector debt deleveraging constrain the Hungarian economy's medium-term growth potential.

The rating agency pointed out that any rating upgrade requires successful fiscal consolidation, resulting in a significant reduction in the public debt ratio and further lowering of the FX share as well as measures to enhance the business and investment environment including greater policy stability.

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