Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). 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 28 March 2022.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Hungary’s long-term ratings at BBB+/Stable account for the outstanding credit strengths, including: i) robust growth dynamics, underpinned by high investment driven by steady inflows of foreign direct investment and projects co-financed with EU funds which have supported to high-value added job creation; ii) increasing resilience to external shocks, resulting from a moderate share of foreign-currency denominated debt, moderate external debt and improvements in the net international investment position. These factors underpin our view that Hungary will withstand the economic fallout of Russia’s invasion of Ukraine, despite the country’s reliance on Russian energy imports as well as to its exposure to supply chain disruptions, which results from its high degree of integration to regional value chains.

The ratings are constrained via a number of challenges, related to: i) elevated public debt stock and growing budgetary pressures, with discretionary measures implemented during the pandemic weighing on the fiscal position; ii) long-term risks to competitiveness, due to adverse demographic trends, structural employment gaps and labour shortages; and iii) institutional challenges related to rule of law issues, reflected by recent deteriorations captured in governance metrics including the rule of law, political polarisation and political tensions with the EU.

The Stable Outlook reflects Scope’s assessment that risks to Hungary’s credit ratings are considered balanced over the forthcoming 12 to 18 months.

The rating/Outlook could be downgraded, if individually or collectively: i) protracted fiscal deterioration or a fading commitment to fiscal consolidation would result in 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; and/or iii) prolonged supply chain disruptions and further inflationary pressures fuelled by imported energy prices and/or currency weakness would materially weigh on macroeconomic stability.

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

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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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