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Finance Minister Mihály Varga, commenting on the recent Standard & Poor’s ratings upgrade for Hungary, said “it was about time” to recognise the economy’s long-standing performance and to accept the market consensus.
S&P Global Ratings raised its long- and short-term foreign and local currency sovereign credit ratings on Hungary to ‘BBB/A-2′ from ‘BBB-/A-3′ with a stable outlook. “The upgrade reflects Hungary’s sound growth prospects, supported by high private savings and real wage gains sustaining domestic demand, as well as the ongoing expansion of export capacity in the automotive and services sectors,” S&P said in its rationale for the ratings action. “While we expect growth to slow toward 2% by 2021, we think Hungary’s small open economy will be able to weather a period of weaker external demand, as well as the expected decline in EU funding,” it added.
Varga told a press conference that the decision was an acknowledgement of the sustainability of Hungarian economic growth and the reduction of the country’s external vulnerability. The other big rating agencies are likely to follow suit shortly, he said. He argued, however, that based on the assessment of the market, Hungary’s rating should have improved by two notches. The minister said foreign investors would continue to see Hungary as a key investment destination as a result of the upgrade, and Hungary would continue to have cheaper access to market funding. For the time being, however, the government does not plan to issue an FX bond, he added.
Varga said the government is drawing up measures to protect the economy in case growth slows in Europe. The ministry targets growth of 4% this year after 4.8% in 2018, he said.
Addressing risks S&P brought up in the area of demographic trends, Varga noted the government’s seven-point plan related to family benefits. The government’s competitiveness programme, he added, aims to improve the productivity of small and medium-sized firms, “the country’s biggest reserve”. The performance of the SME sector is a risk factor when it comes to Hungary’s credit rating, he said. Varga said more still could be done to improve the efficiency of the state.
In recent years, Hungary’s growth has not been debt-fuelled, and the public debt has fallen for the seventh year, reaching 71% by the end of last year, he noted, adding that last year, the budget deficit was 1.8-1.9%, and this also contributed to the lower public debt.
Varga said the government’s family protection measures can be covered from reserves this year, and next year’s budget plan to be adopted by July 5, will incorporate the related spending for 2020.