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Pension changes “unambiguously credit-negative”, says Moody's

Government measures that effectively dismantle Hungary's private pension system in 2011 were “unambiguously credit-negative” Moody's analyst for Hungary said in a report published on Wednesday.

“The changes to Hungary's system were unambiguously credit-negative and represented a key factor behind Moody's decision to downgrade Hungary's government bond ratings to Baa3 on 6 December,” said Dietmar Hornung.

Hungarian members of private pension funds had until the end of January to opt out of a move, along with their assets, back to the state pension pillar.

The changes imply a reduction in outstanding debt but “increase the existing uncertainties regarding the long-term strength of Hungary's public finances,” Moody's said.

The additional revenue from the transfer of the pension assets allows for increased fiscal spending without missing headline budget targets “leading to a significant deterioration of the structural budget deficit,” Moody's said. The measures reduce fiscal transparency as they represent an exchange of an explicit liability in government bonds for an implicit pension liability, it added.

“Moody's believes that the dismantling of the private pension system will adversely affect the liquidity in domestic bond and equity markets," the report said. (MTI-Econews)