Moody's Investors Service on Tuesday downgraded Hungary's sovereign credit rating two steps on concern that the government's plan to cover the budget shortcomings with temporary measures is unsustainable.
Moody's cut the nation's credit rating by two steps to Baa3, the lowest investment grade, and also cited a negative outlook. Moody's decision comes as no surprise as it follows Standard & Poor's and Fitch Ratings which also have given Hungary their lowest rating.
The downgrade is primarily driven by the Hungarian government's gradual but significant loss of financial strength, as the government's strategy largely relies on temporary measures rather than sustainable fiscal consolidation policies, Dietmar Hornung, Moody's lead analyst for Hungary, said. As a consequence, the country's structural budget deficit is set to deteriorate.
Hungary is the EU's most indebted eastern member with an estimated 79% of GDP debt this year. Hungary is working its way to trip its budget shortfall and bridge the gap with the EU and near the 3% limit of deficit to the GDP.
Prime Minister Viktor Orban decided to put private pension funds under state control while imposed special taxes on banking, energy, telecommunications, and retailing.