Surprise decision: Moody's upgrades Hungary's ratings

Moody's Investors Service on Friday night announced that it had upgraded Hungary's sovereign credit rating to 'Baa2' from 'Baa3'. It also changed Hungary's outlook to stable from positive.

GAZDASÁG English 2021. SZEPTEMBER 25. 10:09

The agency explained the decision by writing that Hungary’s economic resilience is underpinned by the strong growth rebound throughout the first half of 2021, helped by effective fiscal and monetary policies, and further complemented by a strong medium-term outlook building on robust investment, with potential growth of around 3-4 per cent over the next five years.

According to Moody’s analysts, the four-notch gap between the local currency ceiling and sovereign rating reflects a moderate government footprint in the economy, strong predictability of government actions and reliability of key institutions, as well as moderate political risks and a robust external vulnerability profile. The foreign currency ceiling is at the same level as the local currency ceiling. As a European Union (EU, Aaa stable) member state, Hungary’s fiscal and macroeconomic policies are subject to regular assessments by the European Commission, and the strong interconnectedness through trade and investment linkages minimizes the risk of transfer and convertibility restrictions in Moody’s view, the Hungarian state news agency (MTI) quotes Moody’s evaulation.

Moody’s announcement means all three global market-leading credit rating agencies register Hungary with the same sovereign debt rating and rating outlook for the first time in several years.

The fact that Moody’s Investors Service has upgraded Hungary’s rating is “a strong and clear feedback for the Hungarian economic policy,” Hugarian Finance Minister Mihaly Varga said in a video published on his social media account.

Moody’s decision can be considered a surprise, despite the fact that the agency has maintained a positive outlook for a year now, said Gabor Regos, the head of the macroeconomics division of Szazadveg Economic Research Co. In view of the coronavirus situation, the upgrade was expected to come only later, in 6 months or a year, if at all, Mr Regos wrote, adding that in order for the Hungarian debt rating to be further upgraded, the country needs a faster decreasing debt and increased competitiveness.