Feb 04, 2016 - Zoltán Kovács

They’re Finally Coming Around on Hungary’s Credit Rating

Last week, one of France’s credit insurance companies, Coface, presented a report on the world economic outlook for 2016. In the report, Coface named only one country eligible for a credit rating upgrade: Hungary.

According to their credit rating system, Hungary’s rating should improve to A4 from B, meaning that Hungary, in Coface’s analysis, has finally returned to investment grade.

We expect that other major credit rating agencies will soon follow suit. Market analysts predict that 2016 is the year that all three of the big names in credit rating — Moody’s, Fitch Ratings and Standard & Poor’s — will restore Hungary to investment grade.

As I’ve said before, it’s high time. Hungary — once as close to bankruptcy as Greece was — has undergone a dramatic economic recovery since 2010. The facts speak for themselves. The budget is now contained with the fiscal deficit consistently under 3 percent. State debt is shrinking, yet the GDP is on a steady growth trajectory. Recognition of Hungary’s recovery comes not only from analysts and international financial institutions; the market has taken note as well. Hungary’s bonds sell at low interest rates and the auctions are regularly oversubscribed.

Major credit rating agencies, of course, remain cautious by nature. According to Fitch Ratings’ recent report, it takes six years on average for a country to regain investment grade status after losing it due to financial troubles. At Fitch, Hungary lost its investment grade rating in January 2012. If predictions prove correct, Hungary will regain its investment-grade status and beat the Fitch average by two years. The Coface report signals that the ratings agencies are finally coming around.