S&P says unlikely to up Hungarian rating soon

VIENNA Mon Oct 15, 2007 10:22am EDT

Kai Stukenbrock, Associate Director of Standard & Poor's, gestures during the Reuters Central European Investment Summit in Vienna October 15, 2007. REUTERS/Herwig Prammer

Kai Stukenbrock, Associate Director of Standard & Poor's, gestures during the Reuters Central European Investment Summit in Vienna October 15, 2007.

Credit: Reuters/Herwig Prammer

VIENNA (Reuters) - Hungary is unlikely to see a change in its BBB+ credit rating in the short or medium due to the country's high fiscal deficit and government debt levels, S&P credit analyst Kai Stukenbrock told Reuters on Monday.

Speaking at the Reuters Central European Investment Summit in Vienna, Stukenbrock said fiscal reforms are progressing and the budget deficit is coming down, in line with expectations.

But, he added, the moves were mainly an attempt at stabilizing the situation and with a European parliamentary election in 2009 and a national election in 2010, an unpopular government may not maintain fiscal discipline.

"The upside potential for the rating over the short or medium term is limited because currently we see a path of declining deficits," he said.

When we put them on stable, we said this is what we expect to see, and we are seeing that. So that's good, but that's not a reason to celebrate."

S&P, which put Hungary's rating at stable from negative in December 2006, expects the government budget deficit will fall to 4.3 percent of GDP by 2008, but with the 2010 elections, the deficit is likely to stay high at 3.8 percent by 2010.

Stukenbrock said the outlook could change to positive at some point "if we see things improving".

"But I think currently we are not considering that because elections are coming up...We've seen since the early 1990s that whenever there's an election, the government starts spending up to two years ahead.

"While we think they are aware of the risks this time around, that they have learned their lesson to some extent, but on the other hand...the government is very unpopular and there will be pressure to spend."