Fitch downgrades Hungary

Fitch Ratings said it downgraded the Republic of Hungary's long-term foreign currency rating to BBB+ with a stable outlook from A- with a negative outlook.

At the same time, Fitch downgraded the long-term local currency rating to A- with a stable outlook from A, downgraded the country ceiling to A from A+ and affirmed the short-term rating at F2.

Fitch said the downgrade reflects the adverse impact of persistently large budget deficits, which have increased the public and external debt burdens. Fiscal ill discipline, likely to delay the adoption of the euro, has heightened vulnerabilities associated with the financing of the sizable current account deficit and has put strains on monetary and exchange rate policy, the agency said.

Budget deficits for 2003 and 2004 have been revised up to 7.4% and 6.5% of GDP, respectively, compared with original budget targets of 4.5% and 3.8%. And the government now expects the 2005 deficit to be 7.4% of GDP, compared with an original target of 4.7%.

Hungary's sovereign ratings remain supported by its level of human development, income per capita, democratic institutions and European Union membership, the agency said. The economy is open and diverse, benefits from a large stock of foreign direct investment and is closely integrated with the wealthy E.U. market.

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