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Hungary budget may trigger credit ratings downgrade, says City

The government's budget plans for next year may prompt rating agencies to downgrade Hungary's credit ratings due to possible “weaknesses”, London-based emerging markets analysts say.

In its Emerging Markets Weekly report released to investors on Friday, Barclays Capital said that the “significant financial front-loading” of the IMF programs seems to have backfired both in Hungary and Romania. As the IMF has already disbursed almost all of the money made available under the stand-by agreements, the two governments have been able to create relatively ample reserves. This, in turn, reduced their immediate liquidity pressures which had forced financial discipline on them earlier in the IMF programs.

In Hungary, the IMF mission left Budapest last week, making “a polite but openly critical statement” regarding the government's fiscal measures to meet the 2011 budget target.

Rating agencies will start their analysis either on submission or after the approval of the budget. “Regardless, we think they could react negatively to its structural weaknesses which raise medium-term sustainability concerns”, Barclays Capital said.

In a separate comment, Royal Bank of Scotland (RBS) said that the IMF “has already passed verdict” on the government's latest fiscal plans, and “is unsurprisingly unimpressed”. It seems skeptical that without further measures, Hungary's 2011 fiscal target will be reached due to the revenue dent created by the planned tax cuts. It has also warned of deterioration in the structural deficit, described the announced tax levies as discriminative and a negative for international investors, and warned that their costs will be partially passed on to the consumer. The IMF also has “numerous concerns” about the government's plans to suspend transfers to the private pension funds.

“We expect the flow of criticism to continue, as the likes of Moody's have yet to pass judgement ... and probably (will) downgrade (Hungary) in November”, RBS said. (MTI-Econews)