By PAN PYLAS AP Business Writer
LONDON December 23, 2010 (AP)
Fitch Ratings agency downgraded Hungary's debt to one notch above junk on Thursday amid concerns over the government's economic strategy and fears that a high debt load leaves the country vulnerable to economic shocks.
Fitch said Hungary's new Fidesz government, which won a two-thirds majority in elections earlier this year, has set out plans ? particularly on pension reforms ? that could worsen the underlying budget deficit by four percentage points over 2011/12.
It also warned that the government is being "optimistic" in forecasting economic growth of 5 percent in 2013.
As a result, Fitch said it has cut its rating on the country by one notch to triple B minus, one step away from junk status, which would greatly hurt the country's ability and cost to borrow on international markets. It also slapped a negative outlook on the country's debt, meaning more ratings cuts are possible.
"The downgrade of Hungary's rating reflects a material worsening in the underlying medium-term budget position, while relatively high levels of public, external and domestic foreign-currency debt leaves the country vulnerable to negative shocks," said Ed Parker, head of emerging Europe at Fitch.
Fitch said further downgrades may be prompted by a failure to implement credible measures to restore the public finances to a more sustainable path, an absence of durable economic recovery, a slowdown in capital inflows and difficulties among banks, local or foreign-owned.
The major ratings agencies ? the other two, Moody's and Standard & Poor's, also have the country's creditworthiness just above junk status ? will be interested in the government's next set of reforms.
The government is poised to win a parliamentary vote later Thursday on its budget. The key measure in the budget is a pledge by the government to reduce the deficit to below 3 percent of national income next year on the back of new levies on foreign-owned businesses, temporary tax rises and diverting pension savings.
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