Scope Ratings reviews its ratings either yearly, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Scope performs monitoring reviews to determine whether outstanding ratings remains proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Hungary (BBB+/Stable; S-2/Stable) on 12 July 2021, incorporating the update from the sovereign methodology. The review resulted in no action on the assigned ratings. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Hungary’s long-term BBB+/Stable ratings are underpinned by the country’s track record of public debt reduction, robust capital inflows of FDI and EU funds supporting growth potential, and increased resilience against external shocks. Following years of above trend growth, Hungary's highly open economy with large exposure to cyclical industries has been severely affected by the Covid-19 pandemic and associated mitigation measures. A large and effective set of monetary and fiscal intervention to support the healthcare sector, businesses and households cushion the economy from the pandemic’s impact. These factors, combined with the unprecedented EU-wide monetary and fiscal stimulus in response to the crisis, underpin Scope’s view that the country is well positioned to weather the Covid-19 crisis and will return to robust growth from 2021 onward. Against these strengths, the rating considers structural challenges posed by i) high public debt and growing budgetary pressures in view of adverse demographic developments and a weak social infrastructure; ii) an economic structure reliant on foreign funding and external demand, weighing on macroeconomic sustainability; and iii) a polarised political environment and political headwinds with the EU, limiting long-term policy predictability.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

The rating/Outlook could be downgraded if: i) protracted fiscal deterioration or a fading commitment to fiscal consolidation would result in a weakened debt sustainability; ii) there is a strong decline in foreign investment and/or significant delay in the availability of EU funds, lowering Hungary’s growth potential.

Conversely, the rating/Outlook could be upgraded if Hungary’s: i) medium-term growth potential increases, supported by high EU inflows ii) public finances improve, resulting in a significant public debt reduction; and/or iii) external debt burden is materially reduced, strengthening Hungary’s reserve adequacy.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Rating Methodology: Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Jakob Suwalski, Director.

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