S&P downgrades Hungary over govt's unorthodox policies

Hungary's increasingly unpredictable policies have caused Standard & Poor's to lower the country's credit rating by one notch to "BB" with a stable outlook, the rating agency said Friday.

"In our view, the predictability of Hungary's policy framework continues to weaken, which could affect the country's medium-term growth prospects," S&P said in a statement.

"We are therefore lowering our long-term foreign and local currency sovereign credit ratings on Hungary to 'BB' from 'BB+'," it added.

The move could make it more expensive for Hungary to borrow money on public debt markets.

S&P similarly lowered its long-term counterparty rating on Hungary's central bank from "BB" from "BB+."

The agency underscored Prime Minister Viktor Orban's "unorthodox, and possibly unsustainable, economic policies," which were affecting growth by discouraging investment, which in turn could impact efforts to reduce government debt.

Among the measures that S&P criticised were tax hikes and levies on the banking, telecommunications and energy sectors.

On Wednesday, Hungary said it would do away with controversial "crisis taxes" on the retail and telecommunications sectors from January 2013, after the European Union (EU) called for them to be scrapped.

The special levies were "discriminatory" as they disproportionately affect non-Hungarian operators, Brussels said.

However, a revenue-based tax levied by Hungary on the banking sector and also introduced as a temporary "crisis tax," was made permanent at its 2013 level as part of a package of fiscal adjustment measures announced by the economy ministry a week ago.

The austerity package, which also increased taxes on energy companies, was the third in six weeks, as Budapest tries to keep its budget deficit under 3.0 percent of the nation's output to avoid losing access to vital EU cohesion funds.

According to the European Commission's autumn economic forecasts released earlier this month, Hungary's public deficit will reach 2.5 percent of gross domestic product in 2012, 2.9 percent of GDP in 2013, and 3.5 percent in 2014.

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