Hungary's failure to obtain a European Union and International Monetary Fund loan four months after requesting assistance is credit negative, Moody's Investors Service said.

The absence of a loan makes external borrowing "challenging" for the country and rising costs on domestic bond sales "pose questions for debt sustainability," Alpona Banerji, a Moody's analyst in London, said in a report.

Hungary is seeking to quell investor concern that it isn't committed to an IMF deal after the European Commission, the EU's executive arm, said March 7 that the government failed to meet preconditions for the start of talks as the forint dropped to a record and the country's sovereign-credit rating was cut to junk. Hungary's total borrowing needs this year may equal about 15 billion euros ($20 billion), or 16 percent of gross domestic product, the highest in central and eastern Europe, Moody's said, citing its estimate.

The standoff between Hungary and the European Commission "is delaying negotiations on a much-needed support package from the International Monetary Fund and the EU, which is credit negative for Hungary," Moody's said.

The European Commission last week took a formal step toward seeking a court order to require Hungary to redraft laws on the judiciary and data-protection agency and asked for more information on planned changes to a new central bank law. "The increasing cost of borrowings and fragile investor confidence underscore the necessity of an external support program for Hungary," said Moody's, which rates Hungary's sovereign credit Ba1, the highest non-investment grade, with a negative outlook.

Source: Reuters

Last Updated on Thursday, 15 March 2012 07:17