April 17, 2024

Fitch Joins Others in Cutting Hungary Debt to Junk Status

BUDAPEST — Hungary lost the investment grade on its foreign-currency debt at Fitch Ratings on Friday, the third such downgrade in six weeks, increasing pressure on Prime Minister Viktor Orban to obtain an International Monetary Fund backstop.

The foreign-currency bond ratings were cut one step to BB+ from BBB-, Fitch said in a statement. Fitch, which awarded Hungary its investment grade in 1996, assigned a negative outlook. The country is rated Ba1, at Moody’s Investors Service and BB+ at Standard Poor’s, the highest non-investment rating at both companies.

The International Monetary Fund and the European Union broke off talks last month on Hungary’s bid for a bailout after the government refused to withdraw a new central bank regulation that the institutions said may undermine monetary-policy independence. The forint fell to a record against the euro Thursday as investors speculated a loan deal may be delayed.

“The downgrade of Hungary’s ratings reflects further deterioration in the country’s fiscal and external financing environment and growth outlook, caused in part by further unorthodox economic policies which are undermining investor confidence and complicating the agreement of a new” agreement with the I.M.F. and the E.U., Matteo Napolitano, a director in Fitch’s sovereign group, said in a statement.

Earlier Friday, Mr. Orban retreated in his confrontation with the central bank chief Andras Simor, seeking to revive talks on an international bailout after a market rout this week, boosting stocks, bonds and the currency.

The forint held on to its gains after the downgrade. Hungary’s 10-year government bond yielded 10.115 percent, down 0.29 percentage points. The benchmark BUX stock index rose 0.4 percent, snapping a three-day decline.

The country will have the highest debt level and lowest economic-growth rate among the E.U.’s eastern members next year, according to a European Commission forecast. An I.M.F. agreement would probably reduce pressure on Hungary’s debt rating, Fitch said in November.

“The main risk is if the government fails to agree with the” I.M.F. and the E.U. “on the legal changes, but Fitch’s comments look like something that has been in the pipeline and should have been released earlier this week,” Simon Quijano-Evans, a London based economist at ING Bank, said Friday. “We see the move as neutral.”

Investors are shunning riskier assets and demanding higher yields as European leaders grapple with a debt crisis that started in Greece more than two years ago and is threatening to infect weaker economies.

The central bank raised the benchmark interest rate to 7 percent on Dec. 20 from 6.5 percent, which was already the E.U.’s highest. Policy makers said they may boost borrowing costs further if risk perception and the inflation outlook deteriorate “substantially.”

Mr. Orban has relied on one-time measures, including the effective nationalization of $13 billion of mandatory private pension-fund assets and extraordinary industry taxes to control the budget. The deficit had already reached 182 percent of the Cabinet’s full-year target at the end of November.

The government is also cutting spending and raising taxes to save as much as $4 billion a year by 2013.

Mr. Orban wants to cut debt from 81 percent of economic output last year and aims to keep the budget deficit within 2.5 percent of gross domestic product in 2012.

Article source: http://feeds.nytimes.com/click.phdo?i=55301a69ce8da37a60f6ed37a441e0a5

Speak Your Mind