16.11.2018

The international rating agency Fitch has affirmed Bulgaria’s long-term foreign and local currency credit ratings at “BBB”, outlook stable. The short-term foreign and local currency credit ratings have also been affirmed at “F2”. The ratings are supported by the sound external and public finances and the credible policy framework aimed towards gradual accession to eurozone membership. The ratings are constrained by lower income levels compared with the current “BBB” median and demographic challenges which could constrain growth and weigh on government finances over the long term.

The agency expects the economic growth in 2018 to remain close to the one reported last year, at 3.7%, before slowing to 3.5% in 2019 and 3.0% in 2020. Domestic demand would be supported by the policy of increasing public and minimum wages as well as by the expected acceleration of the absorption of EU funds.

The agency has revised upwards its forecast for the annual average inflation to 3% in 2019, from 2.8% in 2018.

The rating agency points out that the monetary policy operates under the conditions of a credible currency board arrangement against the euro. According to the estimates of Fitch, Bulgaria's net foreign assets (2018F: 33% of GDP) and external liquidity ratio (2018F: 343%) are high compared with the “BBB” median of 5.3% and 143.7%, respectively, and will remain key credit strengths over the forecast period.

In the area of public finances, Bulgaria is also ahead of its peers. Fitch expects the positive budget balance to be preserved and to be 0.5% of GDP at end-2018; it also expects an average deficit of 2.4% for the other countries with a “BBB” rating. Government debt levels also remain far lower than both the average ones for the countries with the same rating and most other EU member states. For the forecast period, the agency expects the public debt to continue to decline, dropping to 19.5% in 2020.

According to the experts, Bulgaria's external finance metrics outperform the majority of its “BBB” peers. They also point to the improved competitiveness and current account surplus.

The main factors that could, individually or collectively, lead to positive rating action are: stronger medium-term GDP growth potential; progressive convergence towards income levels of higher rated peers; progress towards eurozone accession.

The main factors that could, individually or collectively, lead to negative rating action are: re-emergence of external imbalances and/or deterioration of competitiveness; fiscal deficits that result in deterioration of the public debt trajectory; materialisation of contingent liabilities of state-owned enterprises on the sovereign's balance sheet.

You can find the full text of the press release here.