By Gergely Szakacs
BUDAPEST (Reuters) - A decision to delay $1.85 billion of investments shows Hungary is committed to reining in fiscal imbalances, S&P Global said on Tuesday, adding that a "credible consolidation agenda" will be needed to underpin its medium-term rating assumptions.
Prime Minister Viktor Orban's government has struggled since the COVID-19 pandemic to control Hungary's budget deficit, with the shortfall averaging nearly 7% of gross domestic product over the past four years, well above EU average levels.
Orban's government announced this month it would postpone about 1% of GDP worth of investments to cut this year's shortfall to a recently-increased 4.5% of GDP target.
S&P Global Ratings credit analyst Gabriel Forss said that was a step in the right direction, but more will be needed, likely after European Parliament and local elections in June.
"This initial expenditure cut that the government rolled out two weeks ago suggests to us that they are adamant in reining in their somewhat unbalanced fiscal position," Forss told Reuters after S&P affirmed Hungary's BBB- credit rating on Friday.
"We do interpret the government's statements that they take this fiscal situation seriously," he said.
While S&P projects higher deficits over the coming years than Orban's government, Forss said S&P expected continued fiscal consolidation over the 2025-27 period.
"That's what underpins the BBB- rating, including the stable outlook," Forss said, adding that S&P's baseline expectation was that Orban's government would roll out a "credible consolidation agenda" in the second half of this year.
Hungary's central bank has also called for credible fiscal planning to cut market risks for central Europe's most indebted economy after years of missed deficit targets.
"If our projected trend for fiscal stabilisation and consolidation would underwhelm and if policy efforts would be insufficient to produce our trend of consolidating and stabilising fiscal positions of Hungary, then we would have more concerns," the S&P's Forss said.
Hungary now plans to cut the deficit below the EU's 3% of GDP ceiling by 2026, Orban said last month, adding that there was a "buffer year" in case that plan proves too ambitious, with a parliamentary election looming in early 2026.
S&P Global sees Hungary's budget deficit at 5.3% of GDP this year, falling to just 3.7% by 2026 and still exceeding the EU's 3% threshold in 2027 based on its latest forecasts.
However, an expected decline in debt servicing expenditure and the lower costs of regulated utility prices would help next year's budget, Forss said.
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