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Sep 23, 2016

'Orbanomics' is paying off for Hungarians

Two of the three main credit agencies upgraded Hungary to investment grade this year, recognizing for the first time that Orbanomics is working

"Orbanomics" is paying off, writes the Reuters news agency today.

The sharp economic contraction of 2012 has turned into a solid expansion, the budget deficit is under control and Hungary is regaining its investment-grade credit ratings.

Businesses have grown exponentially as Hungarians have started spending again after severe belt-tightening following the 2008 global financial crisis.

Prime Minister Viktor Orbán embarked on his independent policy course shortly after coming to power in 2010. He imposed big windfall taxes on banks, energy, telecoms and retail firms and nationalized private pension savings of 3 trillion HUF.

Such unorthodox measures upset investors and brought him into conflict with the European Union, the International Monetary Fund and financial markets, but they also reined in the budget deficit.

After rating the country's debt as "junk" for five years, two of the three main credit agencies upgraded Hungary to investment grade this year, recognizing for the first time that Orbanomics had worked.

Last week's upgrade by Standard and Poor's, which markets had not expected so soon, drove yields on Hungarian 10-year bonds below those of Poland this week. Analysts expect more investors to pile money into Hungarian assets in the short run.

The budget deficit is now below the EU ceiling of 3 percent of GDP, public debt is declining and the current account is running a huge surplus. The economy grew about 3 percent last year, helped by billions of euros of EU development funds.

By shifting financing to forint-denominated debt sales, Hungary's reliance on foreign currency debt and foreign investors has decreased. And after squeezing the banks for years, Orbán started to cut the bank tax this year, improving investors' mood.