March 3, 2011 / 7:17 PM / 8 years ago

Reforms support Hungary rating, risks remain: Moody's

BUDAPEST (Reuters) - Hungary’s fiscal measures announced this week are supportive for its current debt rating, while the negative rating outlook reflects remaining risks, a senior official of rating agency Moody’s said on Thursday.

The government unveiled steps on Tuesday to cut Hungary’s public debt, the highest in Central Europe at about 80 percent of GDP, to 65-70 percent by the end of 2014 and reduce the budget deficit to 2.2 percent of GDP by 2013.

The measures including new tax revenues and some painful cuts in state subsidies and benefits were aimed at retaining investors’ confidence and averting the threat of a downgrade by rating agencies to junk debt status.

“I see the announcement as being supportive for the current rating, but there are two main risks with the fiscal package, which need to be monitored,” Dietmar Hornung, lead analyst of Hungary and Senior Credit Officer at the agency told Reuters.

“First is the implementation risk, whether the government is able and willing to implement the measures that are needed to achieve the adjustment as proposed. Second, the growth risk.”

“The outlook is negative and reflects a certain balance of risks here which is still to the downside.”

Moody’s rates Hungary Baa3, one notch above junk status, with negative outlook on the rating.

The government expects the new package and other measures to lift employment and boost annual economic growth to between 4-6 percent in the next years from 1.2 percent in 2010.

“This is above our expectations,” Hornung said. “In case economic growth will be lower than the Hungarian government’s forecasts, this will add to the pressure on public finances.”

Hornung said Moody’s would continuously monitor those risks and Hungary’s rating.

When asked what could lead to a downgrade, he said: “A significant deterioration in Hungary’s creditworthiness, economic strength or government financial strength would trigger a change in the rating.”

Government officials have said that a successful fiscal program could make rating agencies upgrade the country and help reduce the country’s big interest rate payment burden.

Hornung said: “A stabilization of Hungary’s government financial strength and a decrease in its external vulnerabilities would be rating positive.”

Earlier Hungarian Economy Minister Gyorgy Matolcsy criticized rating agencies who downgraded or put the country on a negative watch list last year.

Standard & Poor’s and Fitch rate Hungary BBB-, also a notch above the junk category and with negative outlook. They have not commented on the country’s new fiscal program yet.

Reporting by Sandor Peto and Marton Dunai; Editing by Diane Craft

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