Fitch confirms Bulgaria’s “BBB” credit rating, positive outlook

Fitch Ratings reaffirmed Bulgaria’s long-term foreign and local currency sovereign default ratings at ‘BBB’, maintaining a positive rating outlook.

The ratings agency said the outlook reflected “the prospect of euro adoption, which would lead to significant improvements in external metrics.”

“In Fitch’s view, the short-term downside risks associated with the coronavirus pandemic have subsided and are more than offset by the prospects of substantial EU funding for investment and broad engagement. in favor of macroeconomic and fiscal stability (anchored by the inclusion since July 2020 of the Bulgarian government lev in the Exchange Rate Mechanism II,” the agency said.

Fitch said the new Bulgarian government, elected in December 2021, had “significantly reduced short-term political uncertainty” and noted that the Cabinet remained committed to joining the euro in January 2024.

The government’s program to pursue an anti-corruption agenda and more efficient public spending could be set back by the current high energy prices, where “public support schemes could put some pressure on the budget”, and the coronavirus pandemic, “emphasized by the lowest vaccination rate in the EU and an underfunded healthcare system,” Fitch said.

But despite these challenges, the rating agency said it was optimistic about Bulgaria’s economic prospects, predicting growth of 3.7% in 2022 and 4.5% in 2023.

Fitch said progress towards eurozone membership and “an improvement in growth potential”, either through structural reforms to improve the business environment or through efficient use of EU funds, could lead to an improvement in Bulgaria’s credit rating.

On the downside, negative action could be triggered by “a significant delay in the timetable for joining the euro zone” or a prolonged increase in public debt, the “materialization of contingent liabilities on the sovereign’s balance sheet” or prospects lower growth.

(Photo: kavitakapoor/flickr.com)

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