Standard and Poor's Confirms Debt Rating for Hungary

The American credit rating agency Standard and Poor's has affirmed debt rating for Hungary as "BBB-/A-3' Ratings Affirmed; Outlook Stable."

The agency projects the Hungarian real economy will expand by 2.6% in 2024 and average 2.8% growth in 2025-2026, after a mild full-year recession whereby real GDP contracted by 0.5% this year. These projections are based on the assumption that Hungary and the EU will ultimately reach an agreement and some EU funds will be released in the first half of 2024. While we expect fiscal consolidation to take longer, it will be sufficient to stabilize net government debt in the medium term, the agency said.

The stable outlook reflects S&P's view that Hungary's small, open economy will recover from 2024 after this year's rebalancing, which occurred after a series of external shocks and a period of fiscal stimulus in 2022. "We expect this will enable fiscal and monetary policy authorities to restore some policy space. Our forecast also embeds our base-case assumption that EU funds available under the 2021-2027 Multiannual Financial Framework (MFF) and the Recovery and Resilience Facility (RRF) will not be cut significantly, but their disbursement will remain protracted."

Downside scenario
The agency adds, though, that "we could lower the ratings if, against our current expectations, the EU significantly cuts funds, or Hungary's energy supply is constrained, given its still-high import dependence on Russia. Either outcome could weaken Hungary's economic growth prospects and may result in the government deviating from its current fiscal consolidation strategy by extending additional support measures to the economy. In such a scenario, we could see external pressures reemerge with fallout effects on the forint exchange rate and inflation, further constraining the Hungarian National Bank's (Magyar Nemzeti Bank; MNB)'s monetary policy flexibility."

Upside scenario
On the other hand, S&P could raise the ratings if Hungary's twin deficits reduce more quickly than currently expected. In such a scenario, fiscal deficits could further decrease on the back of stronger consolidation efforts and despite high interest costs. This would put general government debt, net of liquid government assets, on a steeper downward path, particularly if growth outcomes exceed our base-line projections.