Moody's Downgrades Budapest Credit Ratings

Ratings agency Moody's on Monday said it downgraded Budapest's baseline credit assessment (BCA) to ba1 from baa3 and long-term foreign and domestic issuer ratings to Ba1 from Baa3, putting them below investment grade. The capital's mayor considers this downgrade 'obvious' after the government failed to adher to an agreement to meet is financial obligations and thus, Moody's decision has been a consequence of that governmental attitude.

The agency said the action follows the disclosure of Budapest's liquidity position highlighting concerns about the city's capacity to repay all of its obligations as required by December 31, 2025.

Uncertainty around the timing and receipt of ordinary transfers, together with very weak liquidity to absorb unexpected cashflow gaps, materially increases the city's near-term credit risk, it added.

Strained intergovernmental relations are evident in ongoing legal disputes over the amount of the solidarity tax to be paid by Budapest to the central government and the absence of the central government's approval for new long-term borrowing by the city.

Moody’s said the heightened risks stem from the unexpected delay in the disbursement of the transfers by the central government that the city had already budgeted. Although Budapest indicated it will secure additional sources of liquidity to meet its obligations even if the ordinary transfers are not received, details on how these additional sources will be secured were not made available, it added.

Ratings agency Moody's recent downgrading Budapest has been "a consequence of the government's senseless and petty policy of extortion", Mayor Gergely Karacsony said on Tuesday, adding that the whole country could see drawbacks of the "anti-Budapest government policies".

According to the mayor, the downgrade was an "obvious" development after the money markets had expected "a sensible financial deal" between the government and the capital but "despite all signals the government proved incapable of such an agreement: they continued tapping Budapest's accounts and failed to meet their legal obligations towards the capital."