Back to investment risk from Fitch Ratings - with a slightly odd timing

HUNGARY - In Brief 21 May 2016 by Istvan Racz

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On Friday, May 20, Fitch Ratings upgraded the Hungarian sovereign's LT FX debt to BBB-/Stable from the previous BB+/Positive level. With this, a four-year period ended, during which Hungary had no investment risk category rating from any of the three leading agencies. Following this move, Moody's (currently at Ba1/Positive) seems more likely than not to make a similar step at its next revision date on July 8. However, Hungary is unlikely to get an upgrade from S&P (currently at BB+/Stable) before the end of this year. Even though the upgrade was announced at a formally pre-set revision date, its timing can be regarded as somewhat interesting. At the start of this year, most analysts, including us, agreed that Hungary was likely to get back its investment risk credit ratings from two of the three leading agencies. However, in recent weeks, a few negative events took place, which lessened optimism to the point that a number of analysts (including us) concluded that an upgrade this year was not likely any more. These events were: - the government set a fiscal deficit target of 2.4% of GDP for 2017, up from an actual 1.9% deficit in 2015 and a 2% target for this year; - rather poor GDP data came out for Q1 (-0.8% qoq, +0.5% yoy, sda); - the UK's upcoming Brexit vote and the EU Commission's new refugee policy plan cast a shadow on the long-term availability of EU development transfers; - evidence was published that the government debt ratio did not decrease at all in the past one year (76.9% of GDP at end-March 2016, after 76.8% one year earlier; and finally - Eurostat insists that Hungary's Eximbank should be classified as part of the government sector, which could raise t...