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 (long-term local and foreign-currency issuer and senior unsecured debt ratings: BBB/Stable; short-term local- and foreign-currency issuer ratings: S-2/Stable) on 31 July 2023.

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 BBB ratings reflect the following credit strengths: i) a strong record of robust growth supported by large foreign investments and significant EU funding – creating high value-added jobs and supporting economic development; and ii) a resilient external position and favourable public debt profile, contributing to debt affordability.

Hungary's economy faces vulnerability due to its reliance on Russian fossil fuel imports and energy-intensive businesses with complex value chains. In 2022, it demonstrated resilience with robust GDP growth of 4.6%. However, the economic outlook for 2023 shows a temporary slowdown, with projected GDP growth of 0.1%. Scope forecasts moderate economic expansion in 2024, with GDP growth around 2.5%, supported by significant foreign direct investments, especially in the automotive industry, a crucial sub-sector of Hungary's industrial sector. Inflation has been a concern, peaking at 25.7% in January 2023 but gradually declining to 20.1% by June. The projected average inflation for 2023 is 17.5%.

In 2022, Hungary experienced a budget deficit of -6.2% of GDP, driven by significant pre-election fiscal spending. Additionally, 1.2% of GDP was attributed to extraordinary gas purchases. Hungary's commitment to reducing the public deficit ratio reflects a prudent fiscal policy framework aimed at ensuring fiscal sustainability. The recent declines in the public deficit and debt ratios indicate a positive trend, highlighting the government's efforts to control expenditures. Scope anticipates a reduction in the deficit to 4.2% of GDP this year and further down to 3.4% of GDP in 2024. The Hungarian government's ambitious targets of 3.9% for 2023, 2.9% for 2024, and 1.9% for 2025 underscore substantial fiscal consolidation efforts over this period. Regarding public debt, Hungary saw a decrease from 76.6% to 73.3% of GDP by the end of 2022. Scope expects it to continue declining to 71.0% in 2023 and 62.0% in 2028, driven by robust nominal growth offsetting the impact of growing interest payments and persistent primary deficits.

Hungary has made significant efforts to address the issues that were hindering the disbursement of EU funds. The recently passed judicial reform and other policy measures undertaken by the Hungarian government indicate a commitment to comply with the enabling conditions set by the European Commission.

Hungary’s ratings are constrained by challenges related to: i) an elevated debt burden with high refinancing needs; and ii) a deterioration in governance indicators in recent years and political headwinds with the EU, which have led to delays to the disbursement of EU funds from the Recovery and Resilience Facility.

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 upgraded if, individually or collectively: i) medium-term growth prospects improved, supported by improving external metrics; and/or ii) public finances improved, resulting in a significant reduction in public debt above Scope’s expectations in the medium term.

Conversely, the rating/Outlook could be downgraded if, individually or collectively: i) Hungary’s GDP growth prospects and/or external metrics worsened materially due, for example, to significant cuts in the disbursement of EU funds and/or notably constrained energy supplies as a result of escalating geopolitical risks; and/or ii) protracted fiscal deterioration weakened debt sustainability.

For the updated report accompanying this review, click here.

The methodology applicable for the reviewed ratings and rating Outlooks (Sovereign Rating Methodology, 27 September 2022) 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, Senior Director

© 2023 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.