Fitch Ratings has affirmed Hungary’s ‘BBB’ rating with a Negative Outlook.
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Hungary’s rating is supported by strong structural indicators, investment-driven economic growth, and stable net foreign direct investment (FDI) inflows. This is counterbalanced by high public debt compared to similar countries, unconventional policy actions, and a deterioration of governance indicators in recent years.
The Negative Outlook reflects risks surrounding the policy environment and the performance of public finances, which could undermine economic stability. Political considerations may lead to distortionary fiscal measures and jeopardize budget sustainability.
Fitch expects the general government deficit to narrow to 4.9% in 2024 from 6.7% in 2023. Budget revenues are expected to be boosted by a gradual recovery of private consumption, a strong labor market, and one-off revenues from special taxes and dividends from state-owned enterprises.
Fitch forecasts the deficit narrowing to 3.9% in 2025, supported by lower debt interest payments and the government’s fiscal plan. However, Fitch is cautious about the medium-term fiscal trajectory due to the low level of political compromise.
Fitch forecasts a slight downward trend in the debt-to-GDP ratio, from 73.5% in 2023 to 74.1% in 2024.
Negative rating action/downgrade could result from failure to address structural and macroeconomic risks, or a persistently loose fiscal policy that prevents government debt/GDP from falling.
Positive rating action/upgrade could result from improvements in governance and economic policy, including strengthening the rule of law and enhancing the credibility of macroeconomic policy.
The Hungarian budget has required mid-year adjustments for years due to the constant and rapid changes in the macroeconomic environment.
The Hungarian government’s state acquisitions continuously require large amounts of financing. The recent purchase of Budapest Airport represents a burden of HUF 1,200 billion, not to mention the medium-term debt burden of the acquired airport company.
The modernization of Hungarian public services systems, healthcare, education, and public administration requires additional future costs that are currently unknown.
The Hungarian government is still unable to obtain EU funds, which could provide significant support for the difficult-to-sustain budget.
The full analysis can be found on the Fitch Ratings website. https://www.fitchratings.com/research/sovereigns/fitch-affirms-hungary-at-bbb-outlook-negative-14-06-2024
This article is not suitable for a complete analysis of Hungary’s creditworthiness and economic indicators, nor for supporting investment or other financial decisions.