Moody's cuts Hungarian debt rating to junk

Hungary’s debt has been rated as junk by Moody’s in a move the country’s Economy Ministry said was “professionally unfounded”.

Moody’s cut Hungary’s rating to Ba1 with a negative outlook, citing levels of debt, poor prospects for growth and a lack of credibility to the government’s fiscal policy.

Last week Hungary returned to the IMF and the EU to discuss assistance as the country faces up to starting to repay a €20bn (£17.11bn) IMF loan granted in 2008.

"However, Moody's believes that, even with such an arrangement, the government's debt structure will remain vulnerable to shocks in the medium term, which are inconsistent with a Baa3 rating," the agency said in a statement.

Moody’s said it doubted the government would be able to meet its target of lowering the government deficit to 2.5 per cent of GDP next year.

The ongoing crisis in the Eurozone was cited as a major problem for the country.

But Hungary’s Economy Ministry hit back, claiming the statements were fueling speculative attacks against the country.

The ministry said the weakness of its currency the forint, which has fallen to a record low against the euro, was due to such attacks and not justified by either the performance of the economy or the shape of the budget.

Standard and Poor’s said it would delay a decision on a possible downgrade of the country until February, waiting to see the results of the talks with the IMF and the EU.

Fitch has also said that the talks could ease pressure on the rating.