What makes a country a good debtor?

Judit Hevér
Analyst

After a series of downgrades, all three credit rating agencies – Moody’s, Standard & Poor’s and Fitch Ratings – now list Hungary’s sovereign debt in the lowest investment-grade category, with a negative outlook, meaning that a downgrade of just one more notch would place it in the speculative category. Due to the restrictions in investment policies, winding up in the “junk” category would have serious market consequences, reducing demand for both Hungarian government securities and the Hungarian currency, which, among other things, would mean that state debt could only be financed at the cost of higher yields and a weakening of the exchange rate. It is, therefore, imperative to implement the economic policy measures necessary to prevent such a downgrade. To understand the issues involved one
needs to examine which are the key factors that could lead to a downgrade, and to see where, in general terms, an imaginary line could be drawn between investment grade countries and states classed in the speculative category due to their reputation as relatively poor debtors.

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