Hungary’s Rating Becomes Junkier

Last week, Standard and Poor’s lowered its credit rating for Hungary for the second time since I’ve been in the country. The rating as fallen from BB+ to BB with a stable outlook. The S&P lowered the rating due to government’s policies and their inability to secure a financing from the IMF and EU.

"The downgrade reflects our opinion that the government’s unorthodox policies, including exceptional measures applied to the financial sector, could erode the country’s medium-term growth potential," S&P said in a statement. (via Reuters)

Credit ratings determine the likelihood of a country to meet its financial commitments. A rating of BB, the first of the ‘junk’ statuses, means that Hungary does not make a sound investment. A BB rating is less vulnerable compared to other junk statuses (PDF), however, uncertainties or changes in its environment can potentially affect the country’s ability to meet its commitments.

The funniest part of all of this is the response from the Hungarian Economic minister who says the downgrade “cannot be taken seriously.”

“Despite the results it acknowledged, S&P is trying to rank Hungary in the group of countries of which none has a budget deficit of less than 3% of gross domestic product, has public debt in a declining trend, and its current account has a surplus. Based on all this, it’s high time for [S&P], a lobby institute of the [financial market] speculators, to downgrade itself,” the ministry said. (via WSJ)

I wonder what this means for the Hungarian forint and investment opportunities in here. We already know the government is getting creative in how they’re attracting foreign investors. Maybe its time they pull out the thinking hats again.