Moody’s downgrades Budapest again

Moody’s Ratings has downgraded the credit rating of Budapest, citing the deteriorating relationship between the Hungarian government and the capital as a key factor behind the decision.

The agency lowered the city’s long-term issuer rating for both domestic and foreign obligations from Ba1 to Ba2, placing Budapest further below investment grade. According to MTI, in Moody’s methodology, the Ba2 rating stands two notches below the lowest investment-grade level, which begins at Baa3. At the same time, the agency also reduced the city’s Baseline Credit Assessment (BCA) from ba1 to ba2. Moody’s assigned a negative outlook to the new rating, signalling that further downgrades remain possible.

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Tensions with government increase financial pressure

According to Moody’s, tensions between the Hungarian government and the capital have intensified the liquidity pressures already affecting Budapest. The downgrade follows another cut issued in December, when the city’s rating was first pushed below investment grade. The rating agency noted that in January the government withdrew funds from the capital after the city failed to make the first instalment of its 2026 “solidarity contribution” payment, a fiscal transfer required from wealthier municipalities.

This move, Moody’s said, worsened Budapest’s already fragile liquidity position. At the same time, stricter conditions attached to the city’s overdraft credit facility have increased refinancing risks. Although the capital recently secured a HUF 10 billion increase in its overdraft limit, this was intended only to bridge a short-term funding gap until local business tax revenues arrive in March.

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At least the debt is slowly declining

Moody’s also highlighted the growing burden of the solidarity contribution, which has risen significantly since its introduction in 2019 and remains a major structural pressure on the city’s finances. If Hungary’s Constitutional Court rules in favour of the government in an ongoing case, Budapest could also be required to pay previously withheld instalments.

Despite these concerns, the agency acknowledged that the capital’s debt level has been steadily decreasing. Debt amounted to about 35% of operating revenues in 2024, compared with 71% in 2021, and is expected to fall further to around 30% by 2027.

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