Moody’s downgrades Budapest credit ratings with negative outlook

Ratings agency Moody’s on Monday said it downgraded Budapest’s baseline credit assessment (BCA) to ba1 from baa3 and long-term foreign and domestic issuer ratings to Ba1 from Baa3, putting them below investment grade. Mayor Gergely Karácsony blamed ‘usurious’ govt for Moody’s downgrade of Budapest.

Moody’s downgraded Budapest credit ratings

The agency said the action follows the disclosure of Budapest’s liquidity position highlighting concerns about the city’s capacity to repay all of its obligations as required by 31 December 2025, the Hungarian News Agency wrote.

Uncertainty around the timing and receipt of ordinary transfers, together with very weak liquidity to absorb unexpected cashflow gaps, materially increases the city’s near-term credit risk, it added.

Strained intergovernmental relations are evident in ongoing legal disputes over the amount of the solidarity tax to be paid by Budapest to the central government and the absence of the central government’s approval for new long-term borrowing by the city.

Liquidity concerns

Moody’s noted that the ratings have also been placed on review for further downgrade. Previously the outlook was negative.

This decision reflects the increased risk of default and the potential acceleration of repayment of the city’s long-term debt due to liquidity concerns. This includes any outstanding portion of the city’s HUF 40bn overdraft.

Moody’s said the heightened risks stem from the unexpected delay in the disbursement of the transfers by the central government that the city had already budgeted. Although Budapest indicated it will secure additional sources of liquidity to meet its obligations even if the ordinary transfers are not received, details on how these additional sources will be secured were not made available, it added.

Mayor blames ‘usurious’ govt for Moody’s downgrade of Budapest

Ratings agency Moody’s recent downgrading Budapest has been “a consequence of the government’s senseless and petty policy of extortion”, Mayor Gergely Karácsony said on Tuesday, adding that the whole country could see drawbacks of the “anti-Budapest government policies”.

According to the mayor, the downgrade was an “obvious” development after the money markets had expected “a sensible financial deal” between the government and the capital but “despite all signals the government proved incapable of such an agreement: they continued tapping Budapest’s accounts and failed to meet their legal obligations towards the capital.”

“Moody’s decision has been a consequence of that governmental attitude,” Karácsony said. The mayor suggested that the ratings agency saw increased risk in “the government’s delaying payments to the city already included in the metropolitan budget“.

Karácsony slammed the government for the cabinet’s “reluctance to negotiate” over “a twenty fold increase” in recent years in the city’s tax payments to the central budget. He said the city’s solidarity tax had been raised by 31 percent in 2024, to 76 billion forints, while it was expected to reach 89 billion forints in 2025, 21 percent of the total municipal revenues. He noted that the tax the city was obliged to pay would exceed subsidies from the central budget, while “prolonged legal disputes … increase instability of the system, jeopardise the budget and the balance of financial assets.”

Late on Monday, Moody’s said it downgraded Budapest’s baseline credit assessment (BCA) to ba1 from baa3 and long-term foreign and domestic issuer ratings to Ba1 from Baa3, putting them below investment grade.

The agency said the action follows the disclosure of Budapest’s liquidity position highlighting concerns about the city’s capacity to repay all of its obligations as required by 31 December 2025.

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