Fitch joints Moody's, S&P, in downgrading Hungarian bonds to junk

Jan 6, 2012, 14:54 GMT

Budapest - The third of the three major international financial ratings agencies on Friday downgraded Hungarian debt to junk status.

The statement from Fitch announced that debt issued by the government of Hungary would only be rated at BB+, down from BBB-. The move officially means Hungarian bonds have been ranked as junk - considered the kind of loan to governments most at risk of default.

Similar downgrades have already been made by Standard & Poor's and Moody's.

Fitch also said it had a 'negative' outlook for Hungary's future economic growth, which means it thinks Hungarian debt could slide further into junk territory in the coming months.

'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,' said Matteo Napolitano, director of Fitch's Sovereign Group.

Hungary's government expressed surprise at the decision, noting that its currency, the forint, has recently stabilized after a sharp fall and that rates for credit default swaps had improved.

Hungary has been struggling with a weakening economy for years, a problem exacerbated by the previous government's tweaking of economic data and the current government's go-it-alone approach, shunning outside aid even as it raised taxes that hurt growth.

Prime Minister Viktor Orban has recently changed his tune, with an official request for European Union and International Monetary Fund assistance. But a series of recent legislative changes, including one that could affect the independence of the central bank, have made international groups wary of lending.

Fitch noted that those concerns were making the likelihood of the needed EU/IMF loan less likely.