Monday, 6 December 2010

Hungary risk taking budget policy and Moody downgrades

Moody's Cuts Hungary's Credit by Two Grades on Budget Policy

Hungary’s sovereign credit rating was reduced by Moody’s Investors Service on concern that the government’s policy of plugging budget holes with “temporary measures” won’t be sustainable.

Prime Minister Viktor Orban is bringing private pension funds under state control and imposing special taxes on banking, energy, telecommunications and retailing to cut the budget gap to the European Union limit of 3 percent of gross domestic product next year. Hungary is the EU’s most-indebted eastern member, with debt estimated at 79 percent of GDP this year.

“Today’s 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 in the statement. “As a consequence, the country’s structural budget deficit is set to deteriorate.”

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