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Standard & Poor’s Ratings Services has assigned its ‘A-‘ long-term senior unsecured debt rating to the Republic of Hungary’s (foreign currency A-/Stable/A-2; local currency A/Stable/A-1) new €1bn eurobond issue due 2010.

This is the second eurobond issue launched by Hungary in 2003, following the issue of a 10-year €1bn eurobond in January. The rating on the eurobonds is the same as the long-term foreign currency sovereign credit rating on Hungary.

The ratings on Hungary reflect the government’s continued commitment to structural reforms and market-oriented policies over the past few years. These have supported a remarkable pace of economic diversification and development. The ratings also reflect the government’s moderate – albeit increasing – external indebtedness, and solid external liquidity ratios. External debt financing will increase this year, as a result of low foreign direct investment inflows and the widening of the current account deficit to some 5% of GDP. Nevertheless, reserve coverage of gross external borrowing requirements and of short-term debt is projected to remain at comfortable levels in the medium term, at more than 80% and about 220%, respectively.

The ratings on Hungary are constrained by the challenge of reducing the general government deficit going forward, from the 5.5% of GDP forecast in 2003. The ratings are also constrained by the need to reduce inflation further. Moderate wage growth and a decline in the fiscal deficit remain key to lowering inflationary expectations and supporting the competitiveness of the Hungarian economy.