Moody’s Ratings has downgraded the credit rating of Budapest, citing worsening relations between the Hungarian capital and the national government. The decision, announced in London late Friday, highlights growing liquidity pressure on the city and weakening budget planning capacity.
The rating agency lowered Budapest’s long-term domestic and foreign currency issuer rating from Ba1 to Ba2, placing it two notches below the lowest investment-grade level of Baa3 in Moody’s methodology. At the same time, the agency also downgraded the city’s Baseline Credit Assessment (BCA) from ba1 to ba2.
Moody’s assigned a negative outlook to the new ratings, indicating the possibility of further downgrades. This marks the second downgrade in a few weeks, after the agency already lowered Budapest’s rating in December from Baa3 (investment grade) to Ba1 (non-investment grade).
According to Moody’s, the latest downgrade follows the Hungarian government’s decision in January to withdraw funds from Budapest after the city failed to pay the first installment of a solidarity contribution due in 2026. The move further weakened the capital’s already strained liquidity position.
The agency also noted that stricter conditions on the city’s overdraft credit facility have increased refinancing risks. Although Budapest managed to secure a 10 billion forint increase in its credit line to bridge a short-term financing gap until local business tax revenues arrive in March, liquidity pressures remain significant.
Moody’s highlighted that the solidarity contribution, introduced in 2019 and significantly increased since then, continues to place structural pressure on Budapest’s finances. If the Hungarian Constitutional Court rules in favor of the government in an ongoing legal case, the capital could also be required to pay previously unpaid installments, which would further strain its liquidity.
At the same time, the rating agency acknowledged that Budapest’s debt burden has been steadily declining. The city’s debt-to-operating-revenue ratio fell to 35% in 2024, compared with 71% in 2021, and Moody’s expects it to decrease further to around 30% by 2027.
Budapest Mayor Gergely Karácsony blamed the government for the downgrade. In a statement, he said the decision reflects the worsening relationship between the city and the central government and criticized what he described as the government’s policy of withdrawing increasing amounts of funding from the capital. According to the mayor, the government plans to take around 100 billion forints from Budapest this year.
Karácsony added that the city has repeatedly sought negotiations with the government but claims there has been little willingness for dialogue. He also noted that Budapest has won several legal cases related to the issue.
The mayor warned that the downgrade could ultimately affect the financing costs of the Hungarian state as well, potentially impacting residents. He argued that restoring dialogue with municipalities and strengthening local government rights should be among the priorities of a future government.
