Hungary will probably be able to sustain state finances even as Moody’s Investors Service cut the country’s debt rating, on expectations the new government will continue to narrow the budget deficit, Aviva Investors said.
The government of Prime Minister Viktor Orban, who took office in May, plans to cut the budget shortfall to 2.94 percent of gross domestic product, down from a targeted 3.8 percent this year. The previous government’s austerity measures narrowed the shortfall from a record 9.3 percent four years ago.
“I don’t think Hungary is actually in an unsustainable situation necessarily,” Kieran Curtis, who helps manage $2 billion of emerging-market debt including Hungarian bonds at Aviva, a unit of Britain’s second-largest insurer, said by phone from London. Hungary may be able to build on austerity programs started by former Prime Minister Gordon Bajnai, he said.
The forint weakened the most among global currencies, bond yields rose and the cost of insuring against default increased for the first time in four days after Moody’s lowered Hungary’s credit rating to one step from junk. The rating company cited concern that the government’s policy of plugging budget holes with “temporary measures” won’t work.
Hungary, the first European Union member to obtain an International Monetary Fund-led bailout in 2008, is levying special taxes and funneling assets from pension funds to plug the budget gap. Orban’s government plans to announce spending cuts of as much as 800 billion forint ($3.8 billion) at the end of February, Economy Minister Gyorgy Matolcsy said on Nov. 23, without providing details.
The forint lost 1.3 percent, heading for the biggest daily drop since July, at 3:10 p.m. in Budapest. The yield on bonds maturing in February 2016 rose 10 basis points to 8.06 percent and the BUX Index of stocks dropped 1.6 percent.
“If reforms come along, there is a lot of upside in the assets,” Curtis said.