Hungary punished by credit agencies for failure to embrace austerity cuts

CREDIT rating agency Moody’s cut Hungary’s sovereign rating by two notches, to just above “junk” grade yesterday and said it may cut further if the government fails to get a grip on public finances.

Hungary’s government has rejected austerity and aims to close its budget deficit with hefty new taxes on banks and other businesses as well as a diversion of private pension savings into state coffers.

Moody’s Investors Service analyst Dietmar Hornung said: “The downgrade is primarily driven by the Hungarian government’s gradual but significant loss of financial strength.

“The negative outlook reflects the uncertainties regarding the government’s financial strength, as the country’s structural budget deficit is set to increase and external vulnerabilities make the country susceptible to event risk.”

Hungarian assets have been hit in the last month as the spreading Eurozone debt crisis has driven a decline in global appetite for risk.

While expected, the two-notch downgrade, which puts the Moody’s rating on a par with that of rival Standard & Poor’s, is another signal that markets are not happy with the government’s unorthodox economic policies.

Fitch Ratings -- whose BBB rating for Hungary is now the highest of the three big rating agencies -- has said it expects to conclude a review on Hungary soon.