Hungary has joined Portugal in the credit junkyard after Moody’s downgraded its foreign and local currency bonds to Ba1 from Baa3, ending 15 years of investment status.
The ratings agency cited risks to budget deficit and public debt targets.
It ends a week which saw the country reluctantly go to the IMF for help after the florint hit a record low and bond yields soared. That however is being seen in some quarters as a ploy to keep Moody’s onside. It did not work.
One problem for Hungary is that after cutting the deficit this year it is expected to rise again next. Moody’s expresses doubts about the government’s plans to cut spending in the next three years surviving slowing growth.
The economy ministry responded by saying Moody’s downgrade had “no realistic basis” and that the government could only interpret this as a “financial attack”.
Those who say the IMF application is a ploy point to Hungary’s long unwillingness to swallow IMF medicine, and Prime Minister Viktor Orban’s condition of no strings attached to more credit.
He says he is unwilling to change his avowedly “unorthodox” policies, like forcing banks to take exchange-rate losses on
foreign currency mortgages.