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Fitch Downgrades Hungary To BB+, Negative Outlook
Fitch joins the Hungary "junking" parade, which centers around the country's former unwillingness to yield to the banking cartel regarding its central bank, which as of today is no longer the case: "The downgrade of Hungary's ratings reflects further deterioration in the country's fiscal and external financing environment and growth outlook, caused in part by further unorthodox economic policies which are undermining investor confidence and complicating the agreement of a new IMF/EU deal."
FITCH DOWNGRADES HUNGARY TO 'BB+'; NEGATIVE OUTLOOK
Fitch Ratings-London-06 January 2012: Fitch Ratings has downgraded Hungary's Long-term foreign and local currency Issuer Default Ratings (IDR) by one notch to 'BB+' and 'BBB-', from 'BBB-' and 'BBB' respectively. The Outlook on the long-term IDRs is Negative. The agency has also downgraded Hungary's Short-term IDR to 'B' from 'F3', and its Country Ceiling by two notches, to 'BBB' from 'A-'.
"The downgrade of Hungary's ratings reflects further deterioration in the country's fiscal and external financing environment and growth outlook, caused in part by further unorthodox economic policies which are undermining investor confidence and complicating the agreement of a new IMF/EU deal," says Matteo Napolitano, Director in Fitch's Sovereign Group.
When Fitch put Hungary's ratings on Negative Outlook on 11 November 2011, it cited negative rating drivers as a worse than anticipated economic slowdown, and a rise in the risk premium and fiscal financing pressure. In the agency's view these risks have materialised.
The Hungarian growth outlook is continuing to deteriorate. In December, Fitch halved its forecast for 2012 eurozone GDP growth to 0.4%. Given Hungary's high degree of trade openness and strong economic and financial linkages to the eurozone, as well as tightening domestic financial conditions, the agency in January cut its forecast for Hungary's GDP growth to -0.5% from 0.5% previously.
Fiscal and external financing risks have increased significantly since early November, owing to a deterioration in investor sentiment. Hungary's high stock of government, external and private sector foreign currency debt and large associated financing requirements leave it vulnerable to adverse swings in investor confidence. The government faces external debt repayments of EUR4.6bn in 2012 (and larger ones in 2013-14), as well as large non-resident holdings of domestic debt to roll-over.
An auction for three-year, five-year and 10-year bonds on December 29 failed partially after investors demanded higher yields than the government was prepared to pay (although the holiday period may have been a partial mitigating factor). On January 5 the government sold less than its targeted amount of 12-month bills, and only at a yield of nearly 10%. Yields on 10-year government securities are currently near 11%, up from 8% in early November. The Hungarian forint (HUF) lost another 2% against the euro (EUR) over the same period, reaching an all-time low of nearly 320 in early January. Adverse moves in market sentiment towards Hungary have been greater than in central European peers such as Poland and Romania, highlighting its domestic problems as well as contagion from the eurozone debt crisis.
Additional unorthodox policy measures have further undermined confidence in policy making. In mid-December, preliminary official talks with a view to securing a new deal with the IMF and EU broke down after the government failed to provide assurances that it would alter legislation (including a new Central Bank Act) viewed as contravening EU law. During the parliamentary passage the ruling majority incorporated most suggestions from the European Central Bank (ECB), but left in place provisions that Fitch perceives to reduce the independence of the National Bank of Hungary (NBH). Furthermore, the new constitution, which went into force on January 1 2012, subordinates changes to key tenets of economic policy (such as taxation) to a two-thirds parliamentary majority, thus reducing the scope for fiscal adjustment of future governments.
As a result, the importance of securing a timely new IMF agreement has increased, while the prospects of reaching it have become more uncertain. Fitch expects that a Stand-By Arrangement is the only type of deal that Hungary can realistically expect. Furthermore, even if an agreement were to be reached, doubts would remain over whether the Hungarian government could submit to its strict conditionality, given its track record of policy unpredictability and the premature end in July 2010 of the previous IMF programme.
Hungary remains self-financing on a flow basis: Fitch estimates that in the year to Q311 the sum of the current and capital account surpluses was 3% of GDP.
However, the current-account surplus is as much a reflection of domestic demand weakness as of export resilience. Also, the surplus on the financial balance (around 4% of GDP in Q3, Q4 rolling basis) was driven exclusively by portfolio inflows, whereas the foreign direct investment (FDI) and 'other investment'
balances recorded net outflows.
The two notch downgrade of Hungary's country ceiling to 'BBB', thus reducing the uplift of the Country Ceiling above the Foreign-Currency IDR to two from three notches, reflects Fitch's concerns about the government's track record of unorthodox policies, including with respect to the banking sector. The country ceiling uplift is two or three notches in the case of non-eurozone EU member states, depending on governance and policy records. Nevertheless, the agency believes the imposition of capital controls (which is not permitted under the EU treaty except under exceptional circumstances) is a low risk.
The Outlook on Hungary's ratings remains negative, indicating a probability greater than 50% of another downgrade within the next two years. A further increase in fiscal and external financing risks and the failure to secure a timely and appropriate IMF agreement could lead to a downgrade. A deeper contraction in economic activity than currently expected; evidence of an increase in private sector capital outflows; a material weakening in the government's commitment to fiscal consolidation or destabilising unorthodox policy measures could also lead to a downgrade.
Conversely, an easing in fiscal and external financing pressures, the government meeting its budget deficit targets and a return to healthy growth, particularly in the context of significant structural reforms and declining external debt ratios, could stabilise Hungary's ratings.
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...and futures continue to ramp.
Wake me when the 3-prong plug on algo-3000 is pulled.
Darling I love you but give me Park Avenue...
but Henry you will always be Short and Rich
world is broken...facts and reality are dwarfed by the Central Bank...
Conversely, an easing in fiscal and external financing pressures, the government meeting its budget deficit targets and a return to healthy growth, particularly in the context of significant structural reforms and declining external debt ratios, could stabilise Hungary's ratings.
...or if the Hungarian Premiere goes 500 straight tosses at the craps table without busting.
Unfortunately, he no longer can count of Zsa Zsa Gabor to blow in the dice for luck...
So EUR will be stronger against the Forint?
BULLISH!!!!!!!!!
Where did orthodoxy do for the rest of us?
WHAT not where...........
Ahhhh... yes... it must be Hungary that the cause of all the world's problems - I'm sure its deficits of almost FIVE BILLION would make even the most spendthrift Congressman reach for the smelling-salts /sarc
Anyway, I'm predicting Turkey will be the next downgrade - so with the addition of both Hungary & Turkey, the formerly known PIIGS can henceforth be referred to, much more memorably, as PIGSHIT.
nuyawkfwanky?
B(L)S saves the day!
Zandi on CNBS just wet himself and can't help but mention how bullish this is for Obama every other sentence. What a fucktard!
Domino!
Soon to be renamed Starving!
If hungary goes...Austria is going with it...they were the bankers for Hungary.....oh where oh where is Greece...or Italy.....all qiet on the Western front I see...
at least it's not a surprise
Hungary is a nation of 10 million people with no natural resources but what they do have agriculture, historicaly Hungary has always produced more food than the nation consumes making them a major exporter of food.
Since Hungary joind the EU the flood of EU regulations on what they can grow, what they can't grow, and how they can grow it has nearly destroyed their agriculture.
The way I see it the sooner Hungary defaults and tells the EU to go F#@K their hats the better.
Hungary survived the Romans the Turkish hords, the Nazis, the Russians, they will survive the EU.
Hungary should make an Article 23 GG application to Germany to become a part of the Berlin Republic - after all it cannot survive without German investment and those Audi engines to put in Czech Skodas and Slovakian Q7s
I lived in hungary and was born there.
We lived off agliculture... As soon as we entered the EU prices droped for what we growed, so we moved to UK few years ago, i think in 1-2 years we will move back and grow our own food.
Pssssttt... Hungary also has some of the best looking women in the world - bar none.
Which reminds me: I really must check-out any deals on flights to Budapest.
C'mon Europe, fall apart already!
Bazd meg IMF
szopd le a dagadt faszom Fitch
If you're interested in Hungarian economic history, read "Prague" by Arthur Phillips.
Actually a great read even if you could care less about Hungary.
Someone please tell me how this is not a hatchet job?
I dont have all the details but doesnt Hungary have less of a debt and deficit than, say, Italy, yet what Hungary pays on the 10 year bonds is higher????
Part of the rating is that the longer terms growth prospect is not great??? Like Italy and Spain are in better shape hahahaha
According to the article Hungary is self financing (at the moment, anyways) and they control their own currency. Which was always suggested that is what Greece could do if they left the EU. Well, so how is that not an option for Hungary???
Well all know that bankers are always looking for yield and Hungary did two things that the banksters consider it a cardinal sin.
1. Orban had the gall to tax them (he fucking taxes anything that moves)
2. Not so long ago they told the IMF to take a hike
SO am I correct in assuming that something is up here. Or I am missing something here? (certainly a possibility)
Hungary has been the red haired stepchild of Europe since the breakup of the Austro-Hungarian empire in 1918.
Since then it has suffered half a dozen wars and invasions (always loses) so they're pretty used to it by now.
So they don't have any friends to help them out so it's capitalism red in tooth and claw for tem. European bankers don't want to see anyone going it alone successfully.
Tax yup, 27% VAT just brought in.
Thanks for sharing this information. I really like your way of expressing the opinions and sharing the information. It is good to move as chance bring new things in life, paves the way for advancement, etc. But it is well known to everyone that moving to new location with bulk of goods is not an easy task to move or shift from one place to other place because I have experienced about that and I face the problem like that. There I go to village near to my city faced that problem there.
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