Hungary has ‘major challenge’ with economic plans

Hungary's government faces a major challenge in enacting fiscal and structural changes, including an overhaul of the health care system and education, ratings company Moody's Investors Service said. The government is unlikely to implement any fiscal changes other than tax increases before municipal elections in October, Moody's said in a statement after it published its annual report on Hungary yesterday. “It has long been the medium-term plan of the Socialist Party to enact reforms and expenditure cuts in education and local administration,” Moody's said. “However, it is probable that such structural reforms will not occur until 2007, if at all.” Moody's said Aug. 15 it will wait until the local elections to evaluate the country's efforts to cut budget deficit. b cut Hungary's credit ratings June 15 because of concern the government's plan to reduce deficit may not be sustainable. Fitch Ratings said June 13 the government's deficit-reduction plan was “not optimal,” as it may raise inflation. “Interest rates have recently been raised after continued fiscal deterioration, speculative attacks on the currency, and the introduction of a government fiscal reform package that was judged to rest too much on raising taxes,” Moody's said yesterday. Moody's rates Hungary's long-term foreign and local-currency debt at A1, four levels below the top investment grade. It cut the outlook to negative from stable on Feb. 22, indicating it is more likely to reduce the grade than leave it unchanged or raise it. (Bloomberg)