Moody’s raises Hungary to Baa2, outlook stable
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Moody’s Investors Service raised Hungary’s sovereign rating to Baa2 instead of Baa3, with a stable outlook, in a review scheduled for Friday, according to a report by state news wire MTI.
Hungary’s Moody’s rating now matches the sovereign ratings assigned to it by Fitch and S&P Global Ratings.
“Hungary’s economic resilience is underpinned by the strong rebound in growth throughout the first half of 2021, aided by effective fiscal and monetary policies, and complemented by a strong medium-term outlook based on robust investments, with a growth potential of about 3-4% over the next five years, ”Moody’s said.
“Moody’s expectations that the strong rebound in growth and medium-term outlook over the next few years will support fiscal consolidation and reduction of the government’s debt burden, underscoring Hungary’s resilient fiscal strength “, he added.
Moody’s said Hungary’s medium-term outlook through 2025 is supported by high investment rates, reflecting the country’s attractiveness for foreign investors, as well as the government’s growth-friendly economic policies, including a low corporate tax rate and continued reductions in employers’ social contributions. security contributions.
Moody’s noted that Hungary’s investment rate stood at 27.6% of GDP in 2020, above the EU average of 22%, and added that none of the flagship foreign investment projects in the country was only canceled during the year.
Moody’s said it expected “only very limited scars” from the coronavirus pandemic and placed Hungary’s real GDP level in 2023 at only about 1.5% below the trend of before the crisis.
Moody’s acknowledged that Hungary’s public deficit widened sharply in 2020 thanks to stimulus measures during the coronavirus crisis, causing the state’s debt to jump as a percentage of GDP. The rating agency also said it expects the government to use “most” of the fiscal space created by higher growth in 2021, but stressed that its own forecast for the public deficit this year are 6.5% of GDP, below the target of the Ministry of Finance. 7.5%.
Moody’s added that Hungary will be one of the few sovereigns it rates in the Baa space, which will see its public debt-to-GDP ratio drop between 2020 and 2023.
Moody’s said it expects Hungary’s debt accessibility measures “to remain strong” over the next three to five years.
Moody’s noted that the country’s “contentious relationship” with the European Union resulted in the late approval of its plan to use EU Recovery and Resilience Facility (RRF) funds, but said that he expects an agreement on financing “will eventually be reached” and the impact of a temporary delay on growth and public finances “will be marginal”.
“The challenges for Hungary’s long-term growth prospects stem from an aging population and potential difficulties moving up the value chain, fostering innovation and productivity and ensuring continued income convergence”, Moody’s said.
Moody’s said faster reduction of Hungary’s debt burden and implementation of further structural reforms would be positive for credit, while “slower and less pronounced fiscal consolidation and debt reduction “could downgrade the outlook to negative, although outright downgrade” is unlikely. ” “.