Moody's outlook for Ba1 Hungarian sovereign rating went to positive from stable today

HUNGARY - In Brief 06 Nov 2015 by Istvan Racz

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At its last scheduled revision date this year, Moody's improved its outlook for Hungary's Ba1 long-term FX debt rating from stable to positive today. The agency said it expects the government debt ratio to continue its moderate downward trend from 76.2% of GDP at end-2014, with less influence from exchange rate effects as the ratio of domestic debt to total debt increases. In addition, vulnerability to exchange rate movements, a potential source for a major future fiscal burden, was reduced significantly by the recent conversion of FX-denominated bank loans into forint loans. Moody's decision was largely consistent with the mainstream analyst view. Hungary's sovereign rating remains definitely on an upwardly moving trend, although exactly when it can move back to investment grade remains unclear for now. At present, all the three major rating agencies maintain a sovereign rating just one notch below investment grade for Hungary. Two of them, Fitch Ratings and now Moody's have attached a positive outlook to these ratings, whereas S&P keeps its outlook stable. The next and last revision date of the three institutions on Hungary will be Fitch Rating's on November 20. On that occasion, we see no more than 30% chance of an upgrade to BBB-. In our view, an early upgrade could require better current performance on growth (the Hungarian economy is just slowing down and faces a major macroeconomic shock as incoming EU transfers will likely drop markedly in 2016) and a more friendly government attitude to foreign private investment (as opposed to the recent unfriendly official gestures made in the banking, domestic trade and tobacco industries. However, an upgrade back to invest...