Home Ratings and Research Currently valid ACRA Europe affirms unsolicited credit ratings of BBB to Hungary, outlook Stable
ACRA Europe affirms unsolicited credit ratings of BBB to Hungary, outlook Stable
Friday, 22 November 2019
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Hungary (or the country) has been assigned the following ratings:

  • Long-term foreign currency credit rating at BBB and local currency credit rating at BBB;
  • Short-term foreign currency credit rating at S2 and local currency credit rating at S2.

The outlook on the long-term foreign currency credit rating is Stable and local currency credit rating is Stable.

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

Credit rating rationale

Positive rating assessment factors · Robust and job-rich economic growth. · External deleveraging of both the public and private sectors. · Declining FX exposure of both the public and private sectors. · Declining debt servicing costs.
Negative rating assessment factors · High public debt load. · Pro-cyclical fiscal policy. · Relatively low innovative capacity of the economy. · Relatively high risks for long-term fiscal sustainability.
Stable outlook · The Stable outlook assumes that the rating will most likely stay unchanged within the
12 to 18-month horizon.
Potential rating upgrade factors · Substantial decline in government debt load. · Increase in reserve coverage ratios. · Further progress in external deleveraging of the public and private sectors. · Material increase in governance indicators.
Potential rating downgrade factors · Retreat from fiscal consolidation causing a strong increase in the debt-to-GDP ratio. · Substantial decline in the GDP growth rate. · Further weakening of the institutional quality.

Sovereign model results  

Block Indicative credit rating for the block Modifier Score Modifier corrections to the indicative credit rating Final credit rating for the block
Macroeconomic position AA- Potential economic growth -1 -1 A+
Sustainability of economic growth -1
Efficacy of structural, economic and monetary policies 0
Public finance BB+ Contingent liabilities and risk of them materializing on the sovereign’s balance sheet 0 -2 BB-
Fiscal policy framework and fiscal flexibility -2
Market access and sources of funding -1
Debt sustainability -1
External position A Balance of payment vulnerabilities -1 -1 A-
External debt sustainability -1
Stability of currency regime 0
Institutional framework A- Willingness to pay 0 0 A-
History of defaults 0
Political instability and recent political decisions 0
Involvement in geopolitical conflicts, exposure to geopolitical risks 0

Assigned credit rating

Indicative credit rating A-
Modifier corrections to the indicative credit rating -2
Final credit rating BBB
Assigned credit rating BBB


Trade openness and a high share of manufacturing makes the economy more susceptible to global fluctuations.

Hungary is an upper middle-income economy with a GDP per capita PPP of almost 32,000 international dollars (IMF, 2018). As a relatively small and very open economy (exports contribute nearly 85% of GDP) with a high share of manufacturing in total output (gross value added in manufacturing accounts for almost one-fifth of GDP), it is more susceptible to the global economic cycle. This was demonstrated at the height of the global financial crisis in 2009, when Hungarian GDP fell by more almost 7%, with the consequent recovery being slow until 2013.

Figure 1. Exports and manufacturing dependency of Hungary and its regional peers


Source: Eurostat, 2018

Robust growth is supported by strong investment and buoyant household consumption.

In recent years, Hungary’s economic performance has been robust with an average annual GDP growth of 3.9% since 2014. The main driving factors have been investments and household consumption (with an average five-year annual growth of 8.5% and 4.1%, respectively). Investments have been driven by strong absorption of EU funds (net transfers from the EU accounted for 4% of gross national income in 2014–2018). Meanwhile, household consumption has been supported by strong wage growth in light of rapid absorption of spare labor force (the unemployment rate has fallen from above 11% in 2010–2012 to below 4%), along with a robust increase in public sector wages.

Figure 2. Contributions of particular components to the change of GDP


Source: AMECO

Hungary is susceptible to risks related to the German economy and automotive industry.

The picture has not changed in 2019 yet, despite the global slowdown. Growth remains robust, in Q3 2019 it stood at 4.8% year-on-year. The structure of growth continues to be dominated by investments and household consumption. Projections for the whole year are close to 4.5%. International institutions and the national authorities expect a moderation to around 3% in 2020, mainly in light of slower growth in investment due to an expected decline in EU transfers and weaker investment sentiment. Private consumption is expected to remain buoyant owing to a tight labor market.

The risks are, however, tilted to the downside and mainly related to the external environment. As a country with a high share of exports and a relatively high share of manufacturing (which tends to be more volatile) in GDP, the country’s economic performance is more susceptible to external shocks. Moreover, the relatively high share of the biggest export partner (Germany with a more than 27% share of total exports in 2018) and the biggest export product (vehicles with around a 15% share) makes the country’s exports susceptible to country and sector specific shocks. Export growth is already moderating, despite the launch of new export capacities. Should the global slowdown prove to be more prolonged or steeper, strong domestic fundamentals might not be sufficient to mitigate its impact on the economy, like in 2009.

The robust contribution of EU transfers to the growth is very likely to moderate.

Another source of risk for growth in the medium and long terms is related to EU transfers. Hungary has been the most successful country in terms of absorption of EU funds since the beginning of the decade. On average, the share of net EU transfers reached 4% of gross national income in 2010-2018, the highest among the EU countries. This figure implies a relatively high dependence of growth on EU transfers, which are expected to moderate in the coming years. Moreover, the next EU budget (2021–2027) is very likely to be lower in GDP terms than the previous one and less focused on cohesion and regional development, and thus should contribute less to GDP growth.

Figure 3. Net budgetary balance with the EU (% of gross national income) for CEE EU countries (average for 2010–2018)


Source: European Commission

Wage increases should not pose a risk for competitiveness in the medium term.

The decoupling of wage growth from productivity implies lower potential future wage growth, unless there is a boost in productivity. On average, labor compensation per hour worked grew by 4.3% year-on-year in the past five years according to the OECD, compared to only 1.3% growth in real GDP per hour worked. Yet, from a medium-term perspective, in ACRA Europe’s view the risk of a substantial loss of competitiveness resulting from strong wage increases is contained due to several factors:

(1) Nominal labor costs are still low, even by CEE EU country standards. In 2018, they stood at EUR 9.2 per hour, the fourth lowest in the EU. Thus, the attractiveness of Hungary in terms of nominal labor costs within the EU remains high.

(2) The effect of rising wages on cost competitiveness has been mitigated by a decline in social contributions (the tax wedge paid by an average single person earning the average wage declined from 49% in 2015 to 45% in 2018 according to OECD data) and currency depreciation (see the External Risks section).

(3) While administrative measures (robust increases in public sector wages and the minimum wage) have contributed to wage growth to a significant extent, labor market pressure on wage growth is also strong. According to the European Commission’s latest data, 48.4% of companies in the manufacturing sector (the highest share in the EU) named the shortage of skilled labor as the major factor limiting production.

(4) Labor costs are moderate compared to productivity by EU standards. The share of compensation of employees on gross value added stood at 51.9% in 2018, just below the EU average of 53.3%. Nevertheless, it is noteworthy that this ratio is the highest among Hungary’s Visegrád Group peers (the average for Poland, the Czech Republic and Slovakia stood at 46.1%).

Hungary is lagging behind in innovation.

In the long term, however, the risk of losing competitiveness is higher. Domestic value added to exports is relatively low (55.9% in 2016, according to the OECD) and the productivity gap between large, mostly foreign-owned, companies and smaller enterprises is high. One of the main factors contributing to this is the relatively low innovative potential of the economy by EU standards, which constrains the country’s ability to capture more value added in cross-border value chains.

The share of R&D spending in GDP is well below the average (1.3% of GDP in 2015–2017, the EU average stood at 2.04%). Hungary is also lagging behind in other innovation-related indicators, such as patent applications, R&D personnel, quality of research, and PISA scores. Moreover, brain drain is supported by the free movement of labor within the EU.

Hungary has to boost its innovative potential in order to sustain higher wage growth over the long term. If wages continue to grow at a markedly higher rate than productivity, external competitiveness is likely to negatively impact Hungary’s attractiveness for FDIs, which have been one of the main sources of the country’s growth since its post-communist transformation.

Competitiveness indicators are among the worst in the EU.

An additional factor constraining productivity is a relatively weak regulatory quality and efficiency by EU standards. Hungary scores among the worst in the EU in the Global Competitiveness Index (47th place, the fifth worst in the EU), Doing Business Index (53rd, the sixth worst in the EU), and Economic Freedom Index (64th, the sixth worst in the EU). On the global scale, Hungary’s scores are above average, but so are the wages in Hungary’s economy. Hungary’s productivity and competitiveness would benefit from cutting red tape and decreasing the state’s involvement in the service and retail sectors.

The working-age population may decline by as much as 25% by 2060.

Demographic trends are negative and are likely to constrain GDP growth in the medium and long terms. The country’s population and working-age population have been declining at a moderate pace since the 1980s. The decline in working-age population has intensified in recent years (in 2014–2018, it fell by 0.8% on average compared to 0.4% in the previous five-year period) and is likely to continue at a relatively high pace in the coming decades. According to the Eurostat baseline scenario, the working-age population is projected to shrink by about a quarter by 2060.

Taking all these factors into account, the potential economic growth for the next decade is projected in the 2–2.5% range by both the EU and the IMF, before slowing to around 1.5% in the following decades. Long-term growth potential could increase as a result of improvement in the innovative capacity of the economy, better demographics or due to a positive global productivity shock.

Inflation is likely to remain above 3%.

Inflation has been on an upward trend in recent years. After a period of lackluster price growth in 2014–2016, the annual inflation rate based on Eurostat’s methodology increased to 2.4% and 2.9% in 2017 and 2018, respectively, owing to the strong contribution of food and energy prices. In the first nine months of 2019, annual inflation averaged at 3.4%, despite stalled growth of energy prices, due to a further acceleration in food prices and a robust increase in service prices supported by increasing labor costs. ACRA Europe expects inflation to remain above 3% in 2019–2021, in the upper part of the target corridor (between 2% and 4%) in light of a positive output gap, robust wage growth and accommodative monetary policy.

Figure 4. Annual inflation and its components


Sources: Eurostat, ACRA Europe

Monetary policy remains loose, the inflation rate was the second highest in the EU in 2018.

In ACRA Europe’s view, the efficiency of the monetary policy is moderate. Inflation in Hungary is volatile by EU standards: over the last ten years, the annual volatility of the HICP stood at 1.9%, the second highest in the EU. Moreover, despite some tightening measures during the current period of robust growth (increase in deposit facility from -0.15% to -0.05% and a phase out of certain non-standard measures), the monetary policy remains accommodative. At 0.9%, the base rate is at a historical low, the deposit rate is negative, the Magyar National Bank (MNB) supports the economy via corporate bond purchases and incentivizes SME lending via its Funding for Growth Scheme. A less accommodative monetary policy during robust economic growth would likely help to anchor inflation expectations to lower levels. Despite remaining within the target band, the average annual inflation in 2019 stands at the second highest in the EU.


The general government debt-to-GDP ratio is declining mainly due to strong nominal GDP growth.

The debt-to-GDP ratio has been on a declining trend since peaking above 80% in 2011 mainly as a result of strong nominal GDP growth. In 2018, the debt-to-GDP ratio stood at 70.2%, which is high for a middle-income country in ACRA Europe’s view. This figure is the second highest among the CEE EU countries. Strong nominal growth is disguising relatively high deficits — in 2018, general government net borrowing stood at 2.3%, the fifth highest among the EU countries. Deficits remain elevated despite strong savings on debt servicing costs, which fell from 4.6% of GDP in 2012 to 2.4% in 2018.

ACRA Europe expects the debt-to-GDP ratio to decline further in light of expected strong nominal GDP growth and the government’s consolidation efforts. The government foresees a reduction of the deficit to 1.0% by ESA standards in 2020 as a result of lower investment, personal expenditures and fiscal transfers, which should more than offset the effect of the tax-reducing measures. While ACRA Europe considers the government’s projections as optimistic (our estimate points to a deficit of 1.3%), the debt-to-GDP ratio is very likely to remain on a declining path and is expected to fall to below 67% in 2020.

Figure 5. Factors contributing to the change in the debt to GDP ratio


Source: Eurostat, ACRA Europe

In 2018, Hungary’s structural deficit was the highest in the EU.

The fiscal policy stance will remain pro-cyclical, despite consolidation efforts announced by the government. The European Commission forecasts a decline in the structural deficit from 3.8% in 2018, the highest among the EU countries, only to 2.1% in 2020. The fiscal policy is pro-cyclical at the expense of building up buffers against possible economic challenges. In ACRA Europe’s view, Hungary’s current fiscal framework is not adequate enough to prevent a strong pro-cyclical policy, as has been demonstrated in previous years. The country’s fiscal rules stipulate that general government deficit cannot exceed 3% of GDP, the structural deficit cannot exceed the threshold required to reach the medium-term objective (currently 1% of potential GDP), and require a minimum annual convergence of 0.1 percentage points towards the debt-to-GDP cap of 50%. The rules governing the overall deficit and debt reduction are not ambitious enough to prevent the pro-cyclicality of the fiscal policy, while the rule governing the structural deficit lacks an appropriate correction mechanism.

Figure 6. Dynamics of the structural budget balance in Hungary and the EU


Source: AMECO

The share of external and foreign currency government debt has declined significantly.

The risk profile of the government debt structure has improved substantially in recent years. The share of external debt on the total debt has declined from over 60% at the beginning of the decade to 36.5% (25.5% of GDP) in 2018, while the share of foreign exchange denominated public debt declined from over 50% to 22.8% in 2018, and is fully covered by foreign exchange reserves. The government has played an active role in this process by offering bonds with favorable yields to domestic retail investors (which on the other hand has had an adverse effect on debt servicing costs). The maturity profile raises some concerns — in October 2019 the average residual maturity stood at 4.0 years, the shortest among the EU countries. Approximately one-fifth of the debt is maturing within one year. However, ACRA Europe does not foresee any significant financial stress for Hungary in the next 12 months.

Figure 7. Risk characteristics of government debt compared to non-eurozone CEE EU peers

  Residual maturity Foreign currency share External debt share
Hungary 4.0 years 23% 37%
Czech Republic 6.2 years 12% 40%
Poland 4.9 years 31% 50%
Croatia 4.1 years 75% 37%
Romania 6.9 years 50% 48%
Bulgaria 6.2 years 82% 44%

Source: Eurostat, ECB. October 2019 for the residual maturity, 2018 for others.

Hungary has the highest share of government expenditure to GDP among the CEE EU countries.

The budget flexibility is constrained by a relatively high proportion of government expenditure in GDP and the high volatility of government revenue (which is to a large extent related to the high volatility of EU transfers). In 2018, the share of government expenditures stood at 46.7%, the highest among the CEE EU countries. But it is worth mentioning that the expenditure share in GDP has been trending downward in recent years (in 2015, it stood at above 50%), and this decline is projected to continue given the government’s plans to keep a lid on expenditures and a strong nominal GDP growth. In contrast, the relatively low share of wages, social and interest expenditures in the total revenue (58.6% in 2018) is somewhat increasing the government’s room to maneuver.

Figure 8. Share of general government expenditure in GDP compared to GDP per capita for EU countries


Source: Eurostat, 2018

Despite a significant decline, FX risk is still present in the private sector.

Risks related to contingent liabilities are relatively low in ACRA Europe’s view. According to Eurostat data, non-financial sector liabilities accounted for 11.3% of GDP in 2017, down from 16.1% in 2015. This figure is lower than the unweighted average for EU countries, which stood at 17.9% of GDP. These are mainly related to government guarantees (5.1% of GDP) and liabilities of non-financial state-owned enterprises (4.7% of GDP, 13% of which are related to loss-making entities).

In terms of the contingent liabilities related to the financial sector, the main risks stem from the structure of its assets. FX risk is still present, despite the evaporation of foreign currency household loans following their forced conversion to domestic currency in 2015 (the share of FX loans to households fell from 54% at the beginning of 2015 to 0.5% in September 2019), and is related to non-financial corporations (especially in the real estate sector). Hungary’s non-financial corporations are among the most leveraged among the CEE EU countries (with credit to GDP at 66% in Q2 2019). The share of FX loans of domestic credit institutions to non-financial corporations stood at 43% in Q2 2019. While both ratios are declining, the ability of the non-financial sector to service its foreign currency debts might decline significantly in case of a substantial depreciation of the forint.

Figure 9. Dynamics of the FX debt share in the private sector


Source: MNB

Over 50% of credit institutions’ assets are owned domestically.

Another source of risk is related to the relatively high share of government bonds in banking sector assets (over 23%, the highest in the EU), which makes the banking sector susceptible to an increase in spreads on government bonds. Last, but not least, Hungary has the highest share of assets held by domestic credit institutions (55% in Q2 2019) among its peers. Domestically held banks tend to have poorer governance compared to foreign-owned banks and are more likely to become a liability for the government.

In contrast, there are two factors mitigating the contingent liabilities arising from the financial sector:

Banking sector indicators are solid.

Firstly, banking sector ratios are relatively strong. In 2018, the profitability of the Hungarian banking sector was the highest in the EU, with return on equity of 14.7%. However, this figure has to be interpreted with caution, as it has been propped up by one-off items (de-provisioning, dividend income). Nevertheless, profitability would be strong also in the absence of these one-off items. As for other indicators, liquidity and leverage ratios are markedly stronger than the EU median, while the capitalization and NPL ratios are lagging somewhat, despite recent improvements. The CET 1 ratio stood at 15.8% in Q1 2019 and the NPL ratio at 3.7%, while the EU median stood at 16.5% and 2.5%, respectively. Nevertheless, both ratios are solid on the global scale.

Figure 10. Banking sector statistics for Hungary compared to the EU-28 median

  CET 1 ratio Leverage ratio Loan to deposit ratio Return on equity Non-performing loans ratio
Hungary 15.8% 9.6% 75.5% 14.7% 3.7%
EU-28 median 16.5% 12.3% 96.3% 8.1% 2.5%
Period Q1 2019 Q1 2019 Q2 2019 2018 Q2 2019

Source: ECB

Household indebtedness is the second lowest in the EU.

Secondly, household balance sheets show low signs of vulnerability. Besides the evaporation of foreign currency loans, the low total indebtedness of households contributes to this assessment. Household sector debt in proportion to GDP stood at 17.5% in Q2 2019, the second lowest in the EU, down from over 40% in Q2 2010. The risk arising from the recent acceleration in house prices (14% in Q2 2019) is, thus, limited by low housing debt, a deeply negative credit-to-GDP gap (26% in Q1 2019 according to the Bank for International Settlements), and macroprudential measures limiting household debt servicing costs.

High debt load and aging costs are constraining long-term fiscal sustainability.

In the long-term, the debt sustainability will face challenges due to aging-related costs. The European Commission estimates an increase in pensions, healthcare, and long-term care costs of more than 3% of GDP by 2060 and states that Hungary has to undergo an upfront permanent fiscal adjustment of 4.1% of GDP in order to stabilize the debt-to-GDP ratio in the long term, the fifth highest in the EU. Considering the current elevated debt load and expected future demographic-related costs, ACRA Europe sees moderate risk for Hungary’s debt sustainability in the long term.

Figure 11. European Commission’s long-term fiscal sustainability gap (S2) indicator


Source: European Commission, 2018


The current account surplus has evaporated on the back of a deteriorating goods trade balance.

The current account balance fell from a solid surplus of 4.6% of GDP in 2016 to a mild deficit of -0.5% in 2016 on the back of a deteriorating merchandise trade balance as import growth supported by buoyant domestic demand outpaced the growth in exports. Services (tourism, transport (mainly air), manufacturing services) are a stable and important source of net exports, accounting for more than 5% of GDP. In contrast, the primary income balance is in deep negative territory (in the last five years, it has averaged -4% of GDP), reflecting dividend outflows and reinvestment earnings resulting from FDI-driven growth, following a pattern similar to the rest of the region.

The current account balance is propped up by remittances and EU transfers.

The current account balance is to a significant extent propped up by remittances (mostly from Germany and the US), which have averaged 3.1% of GDP in the past five years, while the capital account is in a solid surplus due to EU transfers (which affect mainly the capital account but also the income balance and the financial account). The surplus on the capital account has averaged 2.4% of GDP in 2014–2018. Both these sources of funding are rather volatile and to a significant degree depend on external factors. Looking at the financial account, the main source of funding is direct investments. The portfolio investments balance is improving on the back of increasing investment in foreign securities and external deleveraging.

Figure 12. Current account balance structure


Sources: Eurostat, ACRA Europe

The external debt-to-GDP ratio has almost halved since the beginning of the decade.

Hungary’s external debt has decreased significantly in recent years. The ratio of external debt (including special purpose entities) fell from almost 200% at the beginning of the decade to 102% in Q2 2019 (81% excluding special purpose entities) as a result of private and public sector deleveraging, robust nominal GDP growth, and an increase in the residential holding of public debt.

Figure 13. External debt dynamics


Sources: MNB, Eurostat

The maturity profile of the external debt is long.

Despite this improvement, Hungary’s external debt remains the highest among the non-eurozone CEE EU countries. Moreover, approximately three-quarters of external debt are denominated in foreign currencies, while reserves can only cover about 25% of FX external debt. However, the refinancing risk is mitigated by the long maturity profile of external debt — reserves can cover more than 100% of foreign currency principal and interest payments due in the next 12 months — and by its sectoral structure. Only 27% of external debt is owed by the banking and private non-financial sectors, which are more prone to refinancing risk. 45% is related to intercompany lending, which is considered to be a very stable source of funding, while the rest can be attributed to the public sector.

Figure 14. External debt statistics

  External debt (% of GDP) FX external debt (share of total) Reserves (% of FX external debt) Share of external debt of the private non-financial sector excluding direct investment Net international investment position (% of GDP)
Hungary 101.8% 76.3% 25.2% 26.8% -49.0%
Czech Republic 80.0% 49.2% 153.6% 59.7% -20.6%
Poland 60.8% 62.3% 54.1% 35.8% -52.8%
Croatia 84.7% 94.1% 47.4% 47.5% -57.3%
Romania 50.0% 84.9% 41.1% 31.4% -45.1%
Bulgaria 63.7% 96.7% 75.4% 47.1% -31.8%

Sources: Eurostat, ECB, IMF, World Bank, Q2 2019

Low reserve coverage ratios might pose a risk in case of an abrupt tightening of global financial conditions.

Other reserve coverage ratios are also the weakest among the non-eurozone CEE EU countries. Reserves can only cover 20% of external debt and less than three months of imports. Reserves declined in 2015–2017 (by EUR 16 bln, or more than 40% in euro terms) due to foreign currency deleveraging of the public and private sector. Since then, the MNB has been gradually rebuilding its reserve buffers. In euro terms, reserves have increased by more than EUR 6 bln since November 2017. Despite this recent positive trend, the reserve buffers are still low. Although ACRA Europe sees no immediate risk for Hungary’s external position, an abrupt tightening of global financial conditions might put further pressure on the reserves and, thus, bring the coverage ratios down to more risky levels.

Figure 15. Dynamics of foreign exchange reserves


Sources: ECB, Eurostat

The Hungarian forint is on a declining path against the euro in the long-term. Rather than being gradual, the declines are episodic. After a period of stagnation in 2014–2017, the forint has again been in decline, losing 6% of its value against the euro, making the forint’s performance the worst among the CEE EU currencies. In ACRA’s view, there is a risk of further weakening in the medium term given the loose domestic monetary policy and an expected slowdown in domestic growth.

Figure 16. Dynamics of non-eurozone CEE EU currencies against EUR (2009=100)


Sources: ECB, ACRA Europe


Voice and Accountability score is the weakest among the EU countries.

On a global scale, the governance indicators for Hungary are considered to be above average, but by EU standards they rank among the bottom countries. Moreover, they have been on the decline since the mid-2000s. The average of the six Worldwide Governance Indicators published by the World Bank bottomed in 2016 and have failed to increase since. The most significant decline has been recorded in the Voice and Accountability category (where Hungary scores the worst in the EU), resulting from measures undermining the freedom of press and civil society.

Figure 17. Historical development of selected Worldwide Governance Indicators


Sources: World Bank, ACRA Europe

Political stability is high by EU standards.

Looking at other indicators, Hungary scores the worst in the Control of Corruption category, which declined to its lowest level ever in 2018. Corruption was identified as the second most problematic factor for doing business in the 2017–2018 World Economic Forum survey (by 14.9% of respondents) after the lack of an educated workforce. This implies a relatively high level of rent-seeking in the economy and constitutes a drag on economic growth. The lower quality of governance compared to most other EU countries is also demonstrated by the ranking in competitiveness reports. In both — the Global Competitiveness Index and Doing Business — Hungary scores in the bottom quartile of EU countries. The only indicator where Hungary scores above the EU average is Political Stability, which is supported by strong public support for the ruling Fidesz party (currently around 50%).

Figure 18. World Governance Indicators compared to EU and CEE EU averages (global average = 0)


Sources: World Bank, ACRA Europe, 2018

Hungary scores third worst in the EU in ACRA Europe’s human capital index, which is composed of average years of schooling, adult mortality rates, and life expectancy at birth. This implies underutilization of human capital, an essential resource for economic growth. Hungary does poorly in the preventable deaths category, with 51.7% of the deaths classified as preventable in 2016, the second highest among the EU countries.

Appendix 1. Comparative analysis of Hungary and the sample group

Comparison of macroeconomic and institutional indicators for 2018

  Hungary Czech Rep. Croatia Poland Slovenia Slovakia
Macroeconomics GDP per capita (1000 EUR, PPS) 22.0 28.2 19.5 21.9 26.9 23.9
Real GDP growth (%) 5.1 3.0 2.6 5.1 4.1 4.0
CPI (% y-o-y) 2.9 2.0 1.6 1.2 1.9 2.5
Openness of economy (% of GDP) 165.5 150.4 101.9 107.8 162.5 190.2
Unemployment (seasonally adjusted) * 3.5 2.1 6.9 3.3 4.2 5.6
Public finance Consolidated government debt (% of GDP) 70.2 32.6 74.8 48.9 70.4 49.4
External consolidated government debt (% of GDP) 25.3 13.0 27.3 24.3 43.9 28.3
Consolidated government budget balance (% of GDP) -2.3 1.1 0.3 -0.2 0.8 -1.1
Credit to private non-financial sector (% of GDP) ** 83.6 78.9 126.3 80.7 78.6 96.9
External position Current account (% of GDP) -0.5 0.3 1.9 -1.0 5.7 -2.6
Real effective exchange rate (base: 2010) 92.3 101.1 99.1 94.3 100.4 102.5
External debt position (% of GDP) 100.2 81.5 82.9 63.4 92.0 113.6
Short-term external debt to total external debt (%) *** 16.6 57.8 23.6 19.4 25.9 47.6
Export diversification index ***** 0.41 0.43 0.45 0.40 0.46 0.48
Institutional framework **** Political stability and absence of violence 0.76 1.04 0.77 0.55 0.91 0.75
Government effectiveness 0.49 0.92 0.46 0.66 1.13 0.71
Rule of law 0.56 1.05 0.32 0.43 1.06 0.53

* Q3 2019 or latest available.

** Non-financial corporations’, households’ and non-profit institutions’ loans and bonds outstanding on a non-consolidated basis.

*** Excluding direct investment. Q2 2019.

**** Assessment of effectiveness ranges from approximately -2.5 (weak) to 2.5 (strong).

***** Indicates the extent of differences between the country’s trade structure and the average world indicator and ranges from 0 (weak differences)
to 1 (strong differences).

Sources:  Eurostat, ECB, World Bank.

Appendix 2. List of material data sources

International Monetary Fund
World Bank
The Bank for International Settlements
European Commission
Organisation for Economic Co-operation and Development
European Central Bank
Magyar National Bank
Hungarian Central Statistical Office

Appendix 3. Key indicators


Balance of payments, EUR bln

  2015 2016 2017 2018
Balance of goods 4.1 4.0 1.9 -1.6
Exports 78.5 78.6 85.6 88.6
Imports 74.4 74.6 83.7 90.3
Balance of services 4.9 6.1 7.2 7.5
Exports 20.3 21.9 23.9 25.0
Imports 15.4 15.8 16.6 17.5
Balance of income -6.3 -4.8 -6.3 -6.5
Income receivable 11.6 14.3 15.3 15.5
Income payable 17.9 19.2 21.7 22.0
Current account  2.6 5.3 2.8 -0.6
Current account. % of GDP  2.3 4.6 2.3 -0.5
International reserves at the end of the period 30.1 24.5 23.4 27.5

Sources: Eurostat, ECB


External position (assets and liabilities), EUR bln

  2013 2014 2015 2016 2017 2018
External debt 147.3 152.8 145.4 138.7 128.5 133.4
long-term * 73.4 72.6 67.8 65.2 63.2 62.3
short-term (up to 1 year) * 16.6 16.1 14.5 13.2 12.0 13.1
External liabilities 147.3 152.8 145.4 138.7 128.5 133.4
Sovereign issuer. including 51.1 51.1 47.7 43.9 39.0 38.4
monetary authorities 3.1 2.2 1.8 1.9 1.6 1.6
consolidated government 48.0 48.9 45.9 42.0 37.4 36.9
Banks 19.5 18.3 16.9 15.8 17.7 17.3
Other sectors 76.8 83.5 80.7 79.0 71.8 77.6
including intra-corporate loans 57.3 64.1 63.0 60.2 53.3 58.0
External assets. excluding shares* 52.2 53.4 54.9 57.2 58.2 63.7
Sovereign issuer. including 35.3 35.5 32.9 25.5 23.6 26.6
central bank assets 33.8 34.5 30.0 24.4 23.3 26.3
other external assets 1.6 1.0 2.9 1.1 0.3 0.3
Banks 7.5 7.5 10.5 17.5 18.3 19.6
Other sectors* 9.4 10.4 11.5 14.2 16.4 17.6
Net debt* 37.7 35.2 26.7 21.5 16.9 11.8
Sovereign issuer 15.7 15.5 14.4 18.5 15.4 11.9
Banks 12.0 10.8 6.3 -1.6 -0.5 -2.2
Other sectors * 10.0 8.9 6.0 4.6 2.1 2.1
International investment position (net). % of GDP -82.2 -80.4 -67.9 -59.6 -54.9 -52.0
External debt. % of GDP 144.4 147.2 130.9 120.2 102.6 100.5

* Excluding direct investment

Sources: MNB, ECB, Eurostat

Budget indicators, % of GDP

  2013 2014 2015 2016 2017 2018
External debt 147.3 152.8 145.4 138.7 128.5 133.4
long-term * 73.4 72.6 67.8 65.2 63.2 62.3
short-term (up to 1 year) * 16.6 16.1 14.5 13.2 12.0 13.1
External liabilities 147.3 152.8 145.4 138.7 128.5 133.4
Sovereign issuer. including 51.1 51.1 47.7 43.9 39.0 38.4
monetary authorities 3.1 2.2 1.8 1.9 1.6 1.6
consolidated government 48.0 48.9 45.9 42.0 37.4 36.9
Banks 19.5 18.3 16.9 15.8 17.7 17.3
Other sectors 76.8 83.5 80.7 79.0 71.8 77.6
including intra-corporate loans 57.3 64.1 63.0 60.2 53.3 58.0
External assets. excluding shares* 52.2 53.4 54.9 57.2 58.2 63.7
Sovereign issuer. including 35.3 35.5 32.9 25.5 23.6 26.6
central bank assets 33.8 34.5 30.0 24.4 23.3 26.3
other external assets 1.6 1.0 2.9 1.1 0.3 0.3
Banks 7.5 7.5 10.5 17.5 18.3 19.6
Other sectors* 9.4 10.4 11.5 14.2 16.4 17.6
Net debt* 37.7 35.2 26.7 21.5 16.9 11.8
Sovereign issuer 15.7 15.5 14.4 18.5 15.4 11.9
Banks 12.0 10.8 6.3 -1.6 -0.5 -2.2
Other sectors * 10.0 8.9 6.0 4.6 2.1 2.1
International investment position (net). % of GDP -82.2 -80.4 -67.9 -59.6 -54.9 -52.0
External debt. % of GDP 144.4 147.2 130.9 120.2 102.6 100.5

Source: Eurostat

Rating history

The rating was first released for distribution on November 30, 2018, with the last review on May 24, 2019.

Regulatory disclosure

The sovereign credit ratings have been assigned to Hungary under the Methodology to assess Sovereign entities. An explanation of the importance of each rating category and a default definition is included in the ACRA Europe website. Information on the rate of historical failure is available at www.cerep.esma.europa.eu. The default rate means a percentage of ratings that were changed to default from the overall number of ratings, for each rating category and given period. The disclosure of the unsolicited rating and outlook was preceded by the approval of the Rating Committee. Since July 30, 2012, ACRA Europe has been a registered credit rating agency according to Regulation (EC) No 1060/2009 of the European Parliament and of the Council of September 16, 2009, on credit rating agencies.

The sovereign credit ratings and their outlook are expected to be revised within 6 months following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.

The credit rating was issued as unsolicited. The rated entity did not participate in the credit rating assignment. ACRA Europe did not have access to the rated entity’s internal documents or management. ACRA Europe, in the context of routine care, verified all sources entering the rating process and considers the scope and quality of the information entering the analytical process to be sufficient to assign a credit rating. The rated entity was notified on November 21, 2019, and after the notification there were no changes or amendments in the rating.

ACRA Europe provided no additional services to the Hungarian government. No conflicts of interest were discovered in the course of the sovereign credit rating assignment.

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