Fitch Ratings changed the outlook for its sovereign BBB to negative yesterday

HUNGARY - In Brief 21 Jan 2023 by Istvan Racz

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On January 20, Fitch published its first revision to Hungary's sovereign rating this year, affirming its BBB rating but lowering its outlook to negative. The agency explained the decision citing two kinds of factors: general risks, such as challenging global conditions, high interest rates, volatile energy prices and decreasing demand for the country's exports, and policy problems, mainly driven by political considerations, including administrative price controls, also administrative techniques to keep credit interest rates low, selective extraordinary taxes and the heavily stop-go character of fiscal policy. Fitch expects delays in Hungary's access to new EU funds, because of politically distorted communication between Hungary and the EU, possibly causing medium-term financing problems and reducing investor confidence in Hungary's economic policies. The agency said that a further negative rating step could take place if: - Hungary remained unable to handle the existing credibility problems about its economic policies;- if the country's competitiveness deteriorates, inflation gets stuck at a high level and energy prices remain at high levels in longer term, which would lead to a worsening of Hungary's medium-term outlook, raising the level of uncertainty about external financing prospects. Importantly, Fitch acknowledges that inflation, the fiscal deficit, the government debt ratio and the current account deficit will likely fall in 2023. So, the agency's current report seems to look at the longer term outlook, rather than at immediate prospects. The report says that positive actions by the authorities would be to take the EU's rule-of-law requirements seriously and to...