Fitch ratings agency on Thursday cut Hungary's rating by one notch to BBB-, just above 'junk' investment status, warning that the government's policies were taking the country in the wrong direction.
"The downgrade of Hungary's ratings reflects a material worsening in the underlying medium-term budget position, while relatively high levels of public, external and domestic foreign-currency bank debt leave the country vulnerable to negative shocks," Ed Parker, the head of Emerging Europe in Fitch's Sovereigns team, said in a statement.
Fitch said an encouraging economic recovery was underway in Hungary and its budget deficit is set to narrow to 3.8 percent of gross domestic product this year from 9.4 percent in 2006.
However, Fitch said the new conservative government of Prime Minister Viktor Orban "has set out fiscal plans that go in the wrong direction for further fiscal consolidation." The ratings agency added "these plans could worsen the underlying medium-term budget outlook by around four percentage points of GDP over 2011-2012." Orban has pledged to bring down Hungary's public deficit to below 3.0 percent of GDP in 2011 as required under an earlier bailout package from the European Union and the International Monetary Fund.
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