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Hungary: Junk Rating Remains

Published: October 28, 2013; 22:16 · (Vindobona)

S&P has reiterated Hungary´s sovereign debt rating. Further cuts are not unlikely.

Hungary: Junk Rating Remains / Picture: © Vindobona.org

At the moment, Hungary´s long-term sovereign debt rating is “BB-“. S&P did not only confirm the rating, but also the negative outlook. The U.S. rating agency warns Hungary of continuing its “unpredictable economic policy”. If Hungary should weaken investor confidence further, further cuts into the non-investment grade are not unlikely, S&P stressed.

In general, Hungary´s creditworthiness remains constrained by the weak growth outlook, S&P stated. The rating agency criticized that Hungary´s measures to improve the economic outlook are not sufficient. Besides that, Hungary´s room for further monetary steps is rather limited.

Regarding the public debt quota, Hungary ranks first among the emerging countries in Europe, S&P underlines. With a debt-to-GDP ratio of 81%, Hungary is still below the EU average of 86.6%. However, Hungary´s borrowing costs already amount to 4% of GDP. In Europe, only Greece and Italy have higher interest quotas.

Not only the public sector, but also the private sector suffers from the high debt level, S&P noted. In addition, Hungary is highly vulnerable to foreign sentiments, according to S&P. Due to the unfavorable fiscal frame conditions, the current decline in sovereign bond yields will come to an end soon, economists say. Next year, Hungary´s borrowing costs are expected to range between 6% and 7%.

This year, the fiscal shortfall is projected to reach 3.5% of GDP. In 2014, the planned budget deficit comes at 2.9% of GDP, which is only slightly below the allowed budget gap of 3.0%. Economists criticizes that Hungary´s basic assumption are not only optimistic, but risky. The conservative government projects an economic growth rate of 2.0%. According to economists, Hungary´s growth rate will reach about 1.2% in the best case.

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