Improvement of outlook on Hungary's BB+ by Fitch Ratings puts policy pressure on the government

HUNGARY - In Brief 23 May 2015 by Istvan Racz

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There can be few things on the face of the Earth that the Hungarian government want more than getting back their investment grade credit rating. Once again, they did not get it yesterday, as Fitch Ratings issued a press release on Hungary, but they got a big step closer to the goal, as Fitch announced an improvement of the outlook on Hungary's BB+ long-term sovereign FX debt rating from stable to positive. Previously, S&P upgraded Hungary from BB to BB+ on March 20 this year, bringing their sovereign rating on Hungary in line with those from Fitch and Moody's. So the outlines of the mirage are obviously becoming more distinct, as Hungary's macro performance is improving, but the overall message remains that further improvement will be needed to achieve a break-through into investment grade. In fact, Fitch's decision came as a surprise to analysts, simply because the agency specifically said in late April that it was not planning to upgrade Hungary "in short term". This was part of an email sent by them to Reuters on 29 April, when they said that despite a rapid decrease of external debt and a big current account surplus, they did not like the government's unpredictable regulation of the business sector, in addition to the fact that the government debt ratio of 77% was just too high as compared to the 40% average of BB+ countries, and the fact that Hungary's fiscal deficit was not sufficiently low to guarantee the sustainable decline of the debt ratio. From this, the market, including ourselves, concluded that on May 22, their pre-determined next revision date, Fitch would not improve the rating outlook either, even though they did not specifically make any reference on...