September 29, 2009 / 2:37 PM / 9 years ago

CEE needs fiscal cuts, no upgrades soon: Moody's

LONDON/VIENNA (Reuters) - There is little chance of rises in eastern European countries’ debt ratings in the next few years given recent fiscal expansion and worsening growth prospects, analysts from ratings agency Moody’s said on Tuesday.

Workers walk past windows in a derelict production hall at Hungarian steel mill DAM in the northeastern city of Miskolc June 25, 2009. REUTERS/Laszlo Balogh

Moody’s vice-president and senior analyst Dietmar Hornung, told the Reuters Central European Investment summit that support from the European Union and International Monetary Fundhad helped to stem the slide after the financial crisis.

But both he and colleague Kenneth Orchard said that economies and markets in the region were still fragile and that governments must tackle their fiscal problems before any upgrades of outlooks could be expected.

“The governments have to get their fiscal (positions) in order. We don’t expect to be moving over to positive in the next few years,” Orchard, who covers Poland, the Baltics and the Balkans, told the summit in Reuters London office.

Moody’s latest sovereign report earlier on Tuesday said Hungary’s rating outlook could be upped to stable if the country continues fiscal stabilization. But outlooks tend to be upped to positive before an upgrade of the actual rating.

“It takes some time to work through the system until we really see improvements,” Hornung, who among other countries covers the Czech Republic, Hungary and Slovakia.

“Even in central Europe it is about stabilizing the debt trend. I don’t expect for my countries that there are imminent outlook changes in the pipeline,” he said.

There are also risks to budgets from upcoming elections and Orchard said that a presidential election in Poland next year did not have to have an impact on the rating but would delay fiscal cuts.

“It is limiting upside for the rating, in that it is preventing fiscal adjustment coming sooner than it would otherwise,” he said.

Moody’s has cut ratings selectively across the region as countries success in riding out the worsening crisis varied widely due to different starting points on financing and debt.

Orchard said one result of the crisis was that while the convergence process in terms of per capita income will continue, it will take much longer than previously thought in many countries.

“Previously some were expecting this might take place in 15 or 20 years. Now we’re looking for some countries it could take 30 or 40 years, for some countries. even longer than that.”

He said for Poland, the convergence path may be 30 years and could stretch out to 40-45 for Bulgaria and Romania.

Additional reporting by Sylvia Westall

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