Hungary was disappointed yet again as Moody’s Investors Services once again refrained from offering an escape from junk in a scheduled report on November 6. However, the rating agency did hand the country an encouraging sign, raising its outlook on the sovereign.
Moody’s maintained Hungary’s government bond rating at Ba1, the highest non-investment grade. However, improved outlook - based on the country's "declining debt and improved economic outlook" - means Moody’s is more likely to upgrade Hungary to investment grade in the future than not.
The country 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 stronger than expected growth and falling state debt.
Moody’s said the key drivers for the outlook change are expectations that the state debt will continue its downward trend in the coming years, supported by a strong commitment to limit the budget deficit and maintain primary surpluses.
The government's "proven track record to deliver on this commitment," is notable, the agency added. Moreover, the declining share of foreign-currency liabilities in the government's debt stock renders it less susceptible to exchange rate shocks than in the past.
The ratings agency expects state debt to fall to 74.3% of GDP this year, and further to below 73% in 2016, from a peak of 81% in 2011. Hungary’s recent positive economic growth performance is also having a positive effect on the rating, and Moody’s expects GDP growth rates to be sustained in the coming years at 2%-2.5%.
A further reduction in the public debt ratio and greater policy stability could lead to an upgrade, Moody’s suggests.
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