Moody’s downgrades Hungary outlook on institutional ‘weaknesses’

washington — The U.S. ratings agency Moody’s downgraded its outlook for Hungary’s government debt Friday citing “institutional and governance weaknesses” and concerns its antagonistic relationship with the EU could have financial consequences.

Hungary is a recipient of substantial amounts of funding from the European Union, which are conditional on meeting certain criteria, including adherence to the rule of law.

The country’s nationalist prime minister, Viktor Orban, has clashed with Brussels on a range of issues in recent years, some of which could see it lose out on those EU funds, Moody’s indicated in a note explaining its decision.

“Our decision to change the outlook to negative (from stable) reflects downside risks related to the quality of Hungary’s institutions and governance,” Moody’s analysts wrote in a note explaining their decision.

What that means, they said, is that Hungary could ultimately lose out on a “substantial” amount of EU money “because it does not meet the conditions for the release of these funds.”

“In turn, this could lower trend GDP growth and weaken fiscal and debt metrics,” they added.

In the same note, Moody’s affirmed Hungary’s investment grade foreign- and local-currency credit rating of Baa2.

Moody’s said that the total EU funds allocated to Hungary were equivalent to around 3.4% of economic output per year.

Given the ongoing “difficult negotiations” between Hungary and the EU, Moody’s noted there were “elevated risks that Hungary will miss out on a substantial amount” of some of that funding.
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