Moody's Ratings downgrades City of Budapest's ratings to Ba2 with a negative outlook, concluding review

Moody's Ratings downgrades City of Budapest's ratings to Ba2 with a negative outlook, concluding review

Moody’s Investors Service has downgraded the credit rating of Budapest to Ba1 from Baa3 and placed it on review for a potential further reduction, citing concerns over the city's liquidity and a financial dispute with Hungary's national government. The rating agency highlighted that Budapest's liquidity position raises doubts about its ability to meet obligations by 31 December 2025, with uncertainty surrounding transfers from the central government and limited capacity to manage cash flow gaps.

Moody's noted that the city's financial stability is exacerbated by ongoing legal disputes over the "solidarity tax," a levy imposed by the national government. This tax increased by 31% in 2024 to 76 billion forints ($231.50 million) and is projected to reach 89 billion forints (21% of 2025 revenues), outpacing funding received from the state.

The downgrade occurs amid heightened political tensions between Budapest's liberal mayor, Gergely Karacsony, and Prime Minister Viktor Orbán's nationalist administration. Karacsony attributed the rating action to the government's "irrational and narrow-minded tax policy". Meanwhile, Orbán has pledged to provide financial support to the city. Moody's also linked the rating adjustment to the partial suspension of European Union funds for Hungary, citing governance concerns raised by the EU. The agency emphasized that these factors increase the risk of default and potential acceleration of Budapest's long-term debt repayment.

The rating action underscores systemic risks stemming from intergovernmental conflicts and external funding uncertainties, with implications for Budapest's borrowing costs and fiscal planning.