S&P Upgrades Hungary’s Credit Rating

Standard & Poor’s recently upgraded Hungary’s credit rating due to the country’s lower financial exposure, mainly thanks to the conversion of foreign exchange loans into Hungarian forints and the government’s policy of borrowing primarily in the local currency.


These decisions have paid off. The timely conversion of foreign currency-denominated loans spared hundreds of thousands of Hungarian borrowers from what could have been a financial disaster when the Swiss central bank lifted the cap on the franc in January and the currency’s value jumped by almost 30 percent.

With Hungary’s 2014 GDP growth exceeding expectations and hitting 3.6 percent, we are back at the pre-crisis GDP level. Even if the latest credit rating upgrade does not restore Hungary’s rating to its pre-crisis category, the upgrade at least recognizes the country’s positive trends.

There’s more. Moody’s announced that it would place OTP, Hungary’s National Savings and Commercial Bank, under review for upgrade. And prospects for more lending activity have brightened, buoyed by the positive news on the economy and plans to roll back the bank tax, as announced following a recent government agreement with EBRD.

The country’s improving competitiveness offers another reason for the upgrade. The government’s early commitments to stimulating growth, cutting the deficit and boosting employment have begun to bear fruit.

In January, the volume of industrial output expanded by 7.7 percent, which is twice as much as previous forecasts. In February, following record low inflation figures, consumer prices rose by only .1 percent, KSH reported. In addition, after successfully exiting the EU’s excessive deficit procedure in 2013, Hungary’s budget remains firmly under control.

Turning to forecasts, Minister of National Economy Mihály Várga announced last week that Hungary’s GDP should grow by 2.8 to 2.9 percent in 2015, adding that many independent analysts have been revising upwards their forecasts of Hungary’s GDP. Even the economic research institute GKI — which is typically more bearish in its assessments, regularly underestimating growth and other economic performance indicators — expects the economy to expand by 2 percent in 2015 and its credit rating to gradually improve. The European Commission predicts falling unemployment, near-zero inflation and dynamic growth for Hungary.

In light of these, it’s not unreasonable to expect more of the credit rating agencies to revise their thinking on Hungary and soon consider investment grade.

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