Rating agency S&P maintains credit rating of Hungary at BBB-.

By bne IntelliNews November 4, 2010
International credit rating agency Standard&Poor's (S&P) affirmed the long-term sovereign credit rating of Hungary at BBB-, as well as the short-term A-3 rating, the agency informed. It maintained negative outlook, considering that the government's fiscal adjustment plan will not be sufficient to reduce the structural deficit and would hamper economic growth prospects in mid-term. In this regards, the tax reforms will have only a minor effect as the tax revenues from extraordinary taxation on telecommunication, energy and retail sector will only compensate revenue loss from the introduction of flat tax rate on personal income. Overall, tax revenues would increase 1.4% of GDP in 2010-2012. The flat tax reform would not enable increase of labour force participation if not accompanied by labour market reforms. S&P believed that the planned transfer of contributions from private pension funds to the state for a 14-month period is a regressive step for the quality of public finances as it could undermine the long-term sustainability. Finally, the agency concluded that the key components of the government's policy may put pressure on lending activity in Hungary and would dampen FDI levels. S&P underlined that a downgrade of the ratings would be expected due to lack of measures to improve the structural deficit and meaningful decline in public debt level. Otherwise, rating upgrade would be expected if authorities introduce clear mid-term fiscal objectives, which would pave the way for sustainable reduction of public debt.

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