Ratings agency Moody’s acknowledged Hungary’s diversified economy, reduced external vulnerability and prudent fiscal policy in an annual credit analysis published late Thursday, but said that the country’s high state debt “remains a constraint”.
“Hungary’s (Baa3 stable) credit profile is supported by its relatively diversified economy, significantly reduced external vulnerability and a government commitment to prudent fiscal policy,” Moody’s said in an announcement on the report.
“The country’s credit constraints include a public debt burden that remains well above those of similarly rated peers,” it added.
Moody’s senior analyst Evan Wohlmann, a co-author of the report, noted Hungary’s sizeable current account surpluses and policies that have sharply reduced the foreign currency share of state debt.
Moody’s expects Hungary’s public debt relative to GDP to fall from 73.9 percent at the end of 2016 to around 71 percent in 2018. It said a faster than expected reduction of the public debt burden, “closer to the median of similarly rated peers”, could provide upward pressure on Hungary’s sovereign rating. Downward pressure on the rating could come from “weakened policy commitment” to containing the fiscal deficit and continuing to reduce the debt burden, as well as policy measures that would weaken the growth outlook, it added.
Moody’s projects Hungary’s GDP growth will reach 3.5 percent in 2017 and 3.1 percent in 2018, but said long-term growth prospects are constrained by a labour market shortage and the country’s strong reliance on European Union funding.
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