S&P cuts Hungary’s outlook to negative

Bloomberg

Hungary’s outlook was revised to negative from stable by Standard & Poor’s Global Ratings as the nation tackles the fallout from war in neighbouring Ukraine and government wrangles with the European Union over billions of euros in funding.
The country’s credit grade was maintained at BBB, the second-lowest investment grade, S&P said in a statement. That matches the level at Moody’s Investors Service and Fitch Ratings.
“External risks, including potential cuts to EU funds and reduced gas flows, could weigh on Hungary’s growth prospects and endanger post-pandemic fiscal consolidation,” S&P said. “Rising wage and price inflation, a volatile exchange rate, and upward pressure on borrowing costs could also narrow the government’s policy flexibility.”
Russia’s invasion of Ukraine fanned investor concern about Hungary, which is highly dependent on Moscow for its energy supplies. A temporary halt in Russian oil flows to central Europe triggered a drop in the currency, which has been the third-worst performing in emerging markets since the outbreak of the war.
Adding to challenges are fiscal concerns after pre-election spending had already run up twin deficits, while relatively high government debt is paired with modest foreign currency reserves.
The forint dropped more than 8% against the euro since Russia’s war in Ukraine started in February, with the turmoil prompting central bank to raise its key rate to the highest level in the EU.
Prime Minister Viktor Orban has failed to clinch an agreement with the EU’s executive on crucial funding, though efforts to reach a compromise on graft and rule of law concerns have helped the forint to recover some of its losses since February.