OREANDA-NEWS. Fitch Ratings announced that the investment grade status of Hungarian sovereign bonds has been restored. The upgrade proves that the transformation of the Hungarian economy has been successful, and Hungarian reforms have been working.

Fitch analysts acknowledged that the country’s -- and the financial sector’s -- vulnerability has been reduced, thanks – among other things – to steady current account surpluses, the forint conversion of forex loans and the MNB’s self-financing programme.

Among positive factors, the agency underlined falling debt rates, as state debt is increasingly funded by domestic resources. Improving fiscal processes have also been highlighted, such as the fact that fiscal deficit has been below 3 percent of GDP. The rating agency is predicting a deficit of 2 percent this year and 2.5 percent for next year. Fitch was also upbeat about the improving situation within the bank sector and the reduction of bank tax rate this year and a planned cut next year.

The agency also prognosticates economic growth of 2.1 percent this year and 2.5 percent next year, driven by a favourable external environment and domestic consumption growth. Consumption growth has been underpinned by falling joblessness, low inflation and the increasing amount of household savings.

The performance of the Hungarian economy and market confidence had already indicated an upgrade, as country risk premia and yield on government securities have almost been on a par with those for investment grade countries for several years.  As the Government began economic reforms in 2010, it was aware of the fact that it was facing downgrades before it was likely to receive upgrades. Following this step by Fitch, the two other major international credit rating agencies are also expected to announce upgrades.