Moody’s Downgrades Budapest’s Credit Rating Again

The international credit rating agency Moody’s justified its decision, announced on Friday night in London, by citing the further deterioration of relations between the Hungarian capital and the government, emphasizing that this situation has exacerbated the already significant liquidity stress on Budapest and worsened the city’s budget planning capabilities.

The company downgraded Budapest’s long-term domestic and external debt risk rating from “Ba1” to “Ba2”. In Moody’s methodology, the “Ba2” rating is two notches below the lower end of the investment grade range, the “Baa3” rating. At the same time, Moody’s Ratings also downgraded Budapest’s Baseline Credit Assessment (BCA) by one notch from “ba1” to “ba2”. The credit rating agency also assigned a negative outlook to the new ratings, indicating the possibility of further downgrades.

This is the second time Moody’s has downgraded Budapest (led by liberal Mayor Gergely Karácsony) in recent weeks: it last downgraded the capital’s ratings in December.

In the previous downgrade announced on December 29, the company downgraded Budapest’s rating below investment grade, changing the rating from “Baa3” to “Ba1”.

The credit rating agency also reviewed the ratings established in December, indicating the possibility of further downgrades, and upon completion of this review, it downgraded Budapest’s ratings by another notch on Friday.

Budapest. Photo: Pexels

In its explanation for Friday’s further downgrade, Moody’s recalls that the government withdrew money from Budapest in January after the capital failed to make the first payment of its solidarity contribution set for 2026.

The move further weakened Budapest’s already weak liquidity position, Moody’s stated in its statement.

Based on the credit rating agency statement, liquidity pressures are exacerbated by the tightening of the capital’s overdraft facility conditions, which increased refinancing risks, even though the city requested and received a HUF 10 billion (around EUR 26 million) increase in its overdraft facility to bridge the short-term financing gap until the arrival of March’s business tax revenues.

According to Moody’s, the solidarity contribution, which has risen significantly since its introduction in 2019, remains one of the main structural pressures on the Hungarian capital’s finances, and if the Constitutional Court supports the government’s position in the current proceedings, Budapest will also be required to pay the previously unpaid installments, which would put further pressure on the capital’s liquidity.

However, Moody’s also highlights that the Hungarian capital’s debt burden has been steadily declining, and measured against operating revenues, it was only 35 percent in 2024, down from 71 percent in 2021.

The credit rating agency said it expects the capital’s debt ratio, calculated in this way, to fall further to 30 percent by 2027.

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