Fitch Ratings affirmed its BBB/Stable rating for Hungary

HUNGARY - In Brief 25 Jul 2022 by Istvan Racz

---

This was announced on Friday, which was set as the second and last review date for Fitch's Hungarian sovereign rating for 2022. Finance minister Varga specifically commented on this news, calling the rating decision as truly favourable. To add context, he mentioned that during the past few months, rating outlooks were reduced by major agencies among others for Czechia and Slovakia, two of Hungary's closest peers. Fitch appreciated robust growth in Hungary, despite expecting a slowdown of GDP growth to 2.4% in 2023 from 5.1% this year. The agency essentially accepted the MNB's and the government's optimistic forecasts regarding inflation and the government budget. It appreciated the recently announced fiscal adjustment measures, although it noted the somewhat unorthodox policies initiated by the government and the central bank. Most importantly, Fitch expects Hungary to reach agreement with the EU on rule-of-law issues, to get access to EU funds, by end-September. This way, the only critical risk it sees for Hungary is the uncertainty about the continued availability of Russian energy. In this regard, Fitch's assessment deviates from ours significantly. Our new forecast, published just three days ago, expects no agreement with the EU and the loss of half of the EU transfers envisaged by the government for next year, with substantial negative consequences on the budget, growth and the BOP. Our key point remains that the EU Commission is evidently unimpressed with the state of rule-of-law talks with Hungary, and what would make the Commission happy would be, in turn, rather difficult for the government to accept. So this subject is really a critical point, not least in th...