Fitch ratings downgraded the long-term local currency rating of Hungary to ‘A’ from ‘A+’. At the same time the outlook on the rating is switched from ‘negative’ to ‘stable’. In its press release, Fitch also affirmed Hungary’s longterm foreign currency rating at ‘A-‘ (the outlook remains negative), the short-term rating at ‘F2’ and
the country ceiling at ‘A+’.
The agency points to budgetary developments as main reason that triggered the downgrade. Noteworthy, in 2004 the government overshot its initial target by a wide margin for a third consecutive year. This in turn contributes to rising general government debt, which Fitch projects at 59% of GDP at end-2004 (compared to median of 38% for ‘A’ rating range countries). Concerning future fiscal developments, the agency still perceives risks for further delay of the euro adoption target date, which currently is set in 2010 opposed to original plans for 2008.
The downgrade was also fuelled by Hungary’s large CA deficit, which Fitch expects at 9% of GDP in 2004, followed only by marginal improvement to 8.5% in 2005. On the positive side is noted the improved growth composition in 2004, which was paced by investments and exports, while wage growth moderation contributed to deceleration in consumption growth and inflation.
Finance ministry officials issue positive statements following Fitch rating downgrade
Finance minister Tibor Draskovics commented for Reuters that the local currency rating downgrade decision by Fitch acknowledges that the Hungarian economy has undergone positive structural change with exports and investments pacing higher-than-projected GDP growth. Furthermore, Draskovics stressed that following the downgrade, the local currency rating now matches that of peer EU newcomers the Czech Republic and Poland. Political state secretary at the finance ministry Tamas Katona defended the necessity of the budget deficit, which was pointed as main reason for Fitch’s decision.
He told MTI News Agency that namely the public spending have facilitated putting the Hungarian economy on the path of sustainable growth. Kantona stressed that “such ratings are reflections of the past, and Fitch’s
evaluation also reflects an earlier phase of the Hungarian economy”.