Standard & Poor’s said it may cut Hungary’s credit rating to junk after the collapse of talks with the International Monetary Fund and European Union. Moody’s Investors Service said it may also lower the country’s grade.
The IMF and EU on July 17 suspended talks with the government without endorsing Prime Minister Viktor Orban’s plans to control the budget deficit. The creditors provided Hungary with a 20 billion-euro ($25.9 billion) rescue package in 2008, which had served to reassure investors.
“We believe that without an EU/IMF program to anchor policy, Hungary is likely to face higher and more volatile funding costs, which in our view could weigh on financial sector balance sheets, the public finances, and economic growth,” S&P said today in a statement.
A rating downgrade would raise the cost of borrowing for Hungary at a time when the country is struggling to repair investor confidence after ruling party officials in June compared the country’s economy with Greece. S&P rates Hungary BBB-, its lowest investment grade. The Moody’s rating is two steps higher at Baa1.
S&P will lower Hungary’s rating if in the coming year it concludes “government policies are unlikely to result in a meaningful decline in public debt,” it said in the statement. A downgrade would reduce Hungary’s rating to junk at S&P for the first time since 1992, putting the country on par with Azerbaijan and Romania.
Luckily, Hungary does not use the Euro yet.