S&P: Poland, Hungary, Czech Republic, Slovakia Suffer from Reform Fatigue


Poland, Hungary, the Czech Republic and Slovakia are suffering from reform fatigue that could limit further improvements in credit quality, Standard & Poor's wrote in a report out Thursday. Hungary's reform momentum unbroken.

None of the four Central European EU countries feels enthusiastic about continuing budget consolidation, as the political atmosphere is hostile and the population is exhausted by reforms. “Political unwillingness or inability to tackle structural reforms and further consolidate public finances could limit improvements in credit quality of the four largest Central and Eastern European countries (the CEE-4),” Standard & Poor's analysts wrote in a report titled “Reform Fatigue Clouds A Brighter Outlook For Central European Sovereign Ratings.”

Out of the four states, Hungary carries the highest momentum to continue budget consolidation. S&P, the world's foremost provider of credit ratings was already familiar with the austerity budget when it changed Hungary's rating from A minus to BBB plus last summer. Late last year, however, it modified its forecast for the Hungarian economy from negative to stable. The new regional report describes the consolidation program as ambitious and all-encompassing. Due to the poor approval ratings of government, the opportunity to accomplish major reforms in Hungary seems to be open until 2008, while state debt is also forecasted to grow during these two forthcoming years.

The four nations all enjoy solid economic growth rates, while their external balances are either improved or generally strong, the agency wrote. These factors justify solid ratings for the Czech Republic (foreign currency A-/Positive/A-2; local currency A/Positive/A-1), Republic of Hungary (BBB+/Stable/A-2), Republic of Poland (foreign currency A-/Stable/A-2; local currency A/Stable/A-1), and the Slovak Republic (A/Stable/A-1).

S&P added that most of these countries continue to show strong growth - particularly in Poland and the Slovak Republic - as evidenced from the rapidly falling unemployment figures. Regarding the common European currency, S&P concludes that it is unlikely that the Czech Republic and Poland could join the euro zone before 2012, and Hungary before 2014.

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