S&P Raises Credit Rating of ‘Defiant’ Hungary

The credit rating agency Standard and Poor’s unexpectedly upgraded Hungary’s status on Friday, elevating it from the “junk” investment zone it had been in for years. The announcement of the rating change came at a time when European leaders gathered in Bratislava to seriously discuss the future and sustainability of the European project post-Brexit, and the move could strengthen Hungarian Prime Minister Viktor Orban, who has upset his international partners since taking power in 2010 by halting cooperation with the IMF, resisting the adoption of austerity measures, pressuring banks and the financial sector, and recently taking a firm stance on accepting economic migrants and refugees.

Citing improved growth expectations, fiscal and external factors, S&P raised Hungary’s rating from BB+/B to BBB-/A-3 with a stable outlook. The move immediately strengthened the forint and is expected to reduce borrowing costs as some investors redirect funds into local assets. The agency assessed that Hungary’s economy, fueled by domestic consumption, could grow at an average rate of 2.5 percent annually in the coming years, with a decline in public debt expected from 75 percent in 2015 to around 70 percent of GDP by 2019.

– Hungary’s external financial profile, which has significantly improved since 2009, will remain strong – the agency stated, estimating that “employment and disposable income growth will likely continue to drive private consumption growth.”

Hungarian Minister of Economy Mihaly Varga welcomed the decision, stating that it should have come long ago.

– The good performance of the Hungarian economy has borne fruit. The markets took this step a long time ago; we have now returned to the category we have belonged to for some time – Varga stated at a press conference.

All major agencies downgraded Hungary’s credit rating to “junk” status in 2010 after Orban adopted unorthodox guidelines for budgetary restraint, including heavy taxation of the financial sector. Reuters reminds us that Orban negotiated a “truce with banks after pressuring them for years and that his right-wing government has kept the budget deficit firmly under control since 2012.”