Economy
JCR upgrades Hungary's credit ratings
JCR raised Hungary’s foreign currency long-term issuer rating to BBB+ from BBB previously, and its local currency long-term issuer rating to A- from BBB+. The outlooks were raised to ‘Stable’ from ‘Positive’.
“Barring marked changes in the external environment such as the EU economy, the country’s main trading partner, JCR expects Hungary to make further improvement on its economy, public finance and financial system. The ratings continue to be supported by the country’s relatively advanced and export-oriented economic structure."
Hungary’s Economy Ministry noted that the upgrade was important primarily due to the country’s yen-denominated issuances.
The upgraded ratings reflect that the government’s economic policies proved effective in a marked improvement of structural drawbacks such as its public finance and financial system, reducing external debt, and strengthening economic base
, the rating agency said.“Barring marked changes in the external environment such as the EU economy, the country’s main trading partner, JCR expects Hungary to make further improvement on its economy, public finance and financial system. The ratings continue to be supported by the country’s relatively advanced and export-oriented economic structure."
Hungary’s Economy Ministry noted that the upgrade was important primarily due to the country’s yen-denominated issuances.
JCR is among the few credit rating agencies that kept Hungary in investment grade while the main rating agencies put it in junk grade.
The Tokyo-based rating agency’s experts paid a visit to Hungary in late January. Their key observations were the following:- The economy keeps sustained growth on surging consumer spending amid higher employment and wages, and growing exports stemming from an expanded capacity of the automobile sector.
- In particular, the robust consumer spending keeps leading the growth, buoyed by major improvements both on the jobless and employment rates that have resulted from labor market reforms.
- JCR assumes that the growth rate may return to the 3% level from 2017 onward as public investment will pick up following resumed inflow of new EU funds (2014-2020). With the aim of strengthening the growth potential, the government has launched a package of additional measures to spur consumer spending and private investment, including a multi-year minimum wage increase and cuts of employers’ social security contributions and corporate income tax. If these measures prove effective, the economy may grow further.
- A major improvement has been made by the country’s financial system. Therefore, JCR judges that the financial system is no longer a constraining factor for its ratings.
- Although the banking sector’s non-performing loan ratio remains high, it may further decline amid the continuing economic expansion.
- The country’s external debt remains large as compared with those of other sovereign governments rated in the BBB range by JCR. However, it shrank close to 100% of GDP at the end of September 2016 from 149% at the end of 2009 mainly led by the banking sector.
- The country’s external liquidity remains stable thanks to continued current account surpluses despite reduced inflows of EU funds in 2016. Furthermore, the government, banks and households have been cutting back on their foreign currency-denominated debts and external debts. This should help reduce the country‘s vulnerability to external shocks.
- The structure of the debt has also improved as the government ramped up its local currency financing mainly from domestic market, in particular households and banks.
- Hungary’s 2017 budget plan contains fiscal relaxation measures including a corporate tax cut, a multi-year minimum wage hike and increased public investment. Nonetheless, the deficit is likely to be kept blow 3% of GDP on increased tax revenue stemming from economic expansion. The budget plan also contains reserves to provide for contingency.
