HOW TO IMPROVE YOUR SOVEREIGN RATING? - A CASE STUDY ON HUNGARY

Credit rating agencies are often regarded as one of the key contributors to the recent financial crisis. Regulatory authorities have expanded the regulation of the sector, which lead to more transparency of decision making processes, allowing us to reconstruct the model calculations of Fitch. When substituting the relevant data into the model, it returns the same result as the one maintained by the agency for Hungarian sovereign rating. Using one- and two-dimensional sensitivity analyses, we investigated considering realistic scenarios whether selected variables can improve the rating further. We found that in the current economic environment, the management of the selected macro indicators (GDP, inflation, broad money supply, gross government debt, foreign currency denominated debt) could not trigger the upgrade of the rating. When considering simultaneous changes of certain pairs of drivers, boosting economic growth financed through increasing government debt seems to offer the only way to move the rating upward. Although it is doubtful whether that could or should be done.