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    Fitch downgrades Hungary's outlook to negative

    AP
    17.10.2008 - 16:55 | Son Güncelleme:

    Rating agency Fitch Ratings downgraded Hungary's outlook to negative from stable on Friday as the effects of the global financial crises increased the countrys credit risk.

    The forint, Hungary's currency, has fallen nearly 20 percent against the euro over the last three months, while the Budapest Stock Exchanges benchmark BUX index is down 9.9 percent on Friday and has fallen nearly 40 percent in October.

    Fitch said global financial turbulence and the likelihood of a recession in the euro zone have increased Hungary's credit risk because of its high external debt, wide current account deficit and large external financing needs.

    Fitch said Hungary's gross external debt stood at 99 percent of its gross domestic product, one of the highest levels in Eastern Europe.

    Some 60 percent of domestic loans by Hungarian banks are in currencies other the forint, mostly Swiss francs and euros, boosting their need for foreign currencies.

    On Thursday, the European Central Bank said it was making as much as 5 billion ($6.7 billion) available to its Hungarian counterpart to boost liquidity on the countrys foreign exchange market.

    Despite cutting Hungary's outlook from stable to negative, Fitch reaffirmed Hungary's foreign currency ratings, saying the response by Hungarian authorities to recent events was strong.

    "Hungarys credit ratings are supported by its robust institutional fundamentals, relatively rich and diverse economy, strong debt management capacity and untarnished debt service record," Fitch said.

    The ratings agency also welcomed efforts announced by Hungarian Finance Minister Janos Veres to cut the 2008 state budget deficit from the earlier target of 3.8 percent of GDP to 3.4 percent and bring down the 2009 deficit aim from 3.4 percent of GDP to 2.9 percent.

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