Moody's Investors Service downgraded Hungary's sovereign credit rating by two notches to near junk on concerns that the temporary measures the government is taking to address budget issues won't be sustainable.
Moody's downgraded Hungary's rating to Baa3, its lowest investment grade. Moreover, the outlook is negative, which could mean further downgrades along the road. Standard & Poor's and Fitch Ratings already gave Hungary their lowest grades.
Hungary is the European Union's most-indebted eastern member, Bloomberg writes, with debt estimated at 79% of gross domestic product this year. It has taken measures to cut the budget gap to the E.U. limit of 3% of GDP next year. But the measures, many criticize, are short term, plugging holes, rather than addressing the real issues.
Some of the measures include taking over private pension funds -- a move reminiscent of what Argentina did before it stopped servicing its debt. In addition, the government is imposing special taxes on banking, energy, telecommunications and retailing. The government plans to announce spending cuts and will freeze the state's nominal wage bill next year and cut as many as 30,000 of the 690,000 public-sector jobs by attrition.
"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, according to Bloomberg. "As a consequence, the country's structural budget deficit is set to deteriorate."
The Hungarian currency, the forint, which is still in circulation, slid 1.1% Monday. The yield on five-year bonds rose 16 basis points.