HUNGARY - Hungary's decision to bring the majority of private-pension savings under state control was "credit negative" and a key factor behind downgrading the country's debt rating, Moody's Investor Service said.
"The Hungarian measures will effectively dismantle its private pension system in the course of this year," Moody's analyst Dietmar Hornung said in a statement from London today.
"The changes in the pension system increase the already existing uncertainties regarding the long-term strength of Hungary's public finances."
Hungarian Prime Minister Viktor Orban funneled the funds to the budget, reversing a decade-old overhaul, and levied extra taxes on the banking, energy, retail and telecommunication industries to cut the nation's budget deficit in line with European Union requirements.
The additional revenue creates fiscal room, allowing an increase in spending without missing headline budget targets, leading to a "significant deterioration" of the structural budget deficit, according to the statement from Moody's.
Moody's lowered its assessment on Hungary's government bonds to BAA3 on December 6, its lowest investment grade. Standard & Poor's and Fitch Ratings also rate the country one step above junk, with negative outlooks.
The pension changes will also adversely affect the liquidity in domestic bond and equity markets, Moody's said.
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