Fitch cuts emerging market sovereign ratings

Fitch Ratings said it downgraded the sovereign ratings of Bulgaria, Hungary, Kazakhstan and Romania. The outlooks of South Africa and Russia also have been revised to negative from stable.

These actions follow the conclusion of a global review of the sovereign ratings of 17 major investment-grade emerging market economies conducted in response to the profound deterioration in the global economic and financial outlook, Fitch said.

Hungary's long-term foreign-currency issuer default rating was downgraded to BBB with stable outlook from BBB+ with negative outlook; long-term local-currency issuer default rating to BBB+ with stable view from A- with negative view; short-term foreign-currency issuer default rating to F3 from F2; country ceiling was downgraded to A from A+. The downgrade reflects the severity of the recession and post-crisis correction to macroeconomic imbalances and associated risks to the public finances and from foreign-currency mismatches in the private sector, Fitch said. However, the €20 billion package of support has largely removed external financing and liquidity risks, supporting its stable outlook, the agency said.

Bulgaria's long-term foreign-currency issuer default rating was downgraded to BBB- with stable outlook from BBB with negative outlook; long-term local-currency issuer default rating to BBB with stable view from BBB+ with negative view; short-term foreign-currency issuer default rating affirmed at F3; country ceiling downgraded to BBB+ from A-. The downgrade reflects the increasing risk of a recession in response to a marked decline in external financing flows, which will necessitate a sharp contraction in domestic demand to rein in the current account deficit, the agency said.

Romania's long-term foreign-currency issuer default rating was downgraded to BB+ with negative outlook from BBB with negative outlook; long-term local-currency issuer default rating to BBB- with negative view from BBB+ with negative view; short-term foreign-currency issuer default rating to B from F3; country ceiling was downgraded to BBB from A-. The two-notch downgrade reflects the agency's concerns about the macroeconomic policy framework in Romania and its ability to avoid a severe economic and financial crisis, Fitch said.

Kazakhstan's long-term foreign-currency issuer default rating was downgraded to BBB- with negative outlook from BBB with negative outlook; long-term local-currency issuer default rating to BBB with negative view from BBB+ with negative view; short-term foreign-currency issuer default rating affirmed at F3; country ceiling was downgraded to BBB from BBB+. The downgrade reflects its weakened capacity to manage the domestic banking crisis, which is further affected by the global financial crisis and decline in commodity prices.

Russia's long-term foreign-currency issuer default rating was affirmed at BBB+ with outlook revised to negative from stable; long-term local-currency issuer default rating at BBB+ with outlook cut to negative from stable; short-term foreign-currency issuer default rating affirmed at F2; country ceiling was affirmed at A-. Russia's strong balance sheet gives it the capacity to take measures to stabilize the banking system and effectively finance the repayment of the corporate and banking sectors' external and foreign-currency liabilities, Fitch said. However, its constrained by the risk of deposit and capital flight, systemic weakness of the banking system and relatively high inflation, the agency said.

South Africa's long-term foreign-currency issuer default rating was affirmed at BBB+ with outlook revised to negative from stable; long-term local-currency issuer default rating affirmed at A with outlook cut to negative from stable; short-term foreign-currency issuer default rating affirmed at F2; country ceiling was affirmed at A. The ratings are supported by a strong banking system. In contrast to other countries, banks have not required sovereign financial support, Fitch said. However, the current account deficit in excess of 7% of GDP means the risk of a hard landing.

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