04.06.2018

Fitch Ratings has affirmed Bulgaria's Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'BBB' with a Stable Outlook. The Short-Term Foreign- and Local-Currency IDR is also preserved at ‘F2”.

Bulgaria’s ratings are supported by its sound sovereign balance sheet and credible policy framework aimed towards gradual accession to the eurozone. The Agency also highlights the strong cyclical position of the economy, which will help the gradual convergence process towards higher income levels of higher rated sovereigns.

The Agency points out that the country’s economic growth is above the average rate of its ‘BBB’ category peers. In 2017 the real GDP growth was 3.6%. This compares with an average of 3.3% across its rating peers. Fitch forecasts Bulgaria to grow 3.7% in 2018 before slowing down to 3.4% in 2019. Headline GDP growth will be mainly driven by domestic demand, with positive employment prospects, higher real wages and improved consumer confidence supporting growth in household consumption. Private and public sector investment look set to accelerate given the implementation of the EU programmes, the favourable financing environment and the improved business sentiment.

The strength of Bulgaria’s sovereign’s balance sheet remains a key support to its ratings. Bulgaria achieved fiscal surpluses since 2016 (0.2% in 2016 and 0.9% in 2017). Fitch forecasts that the surpluses will remain in 2018 – 2019 with an average of 0.1%, which is lower than the Government’s targets and reflects the Agency’s expectations for higher spending related to absorption of EU funds and financing of priority areas.

Bulgaria’s external finances, according to the Agency, outperform the majority of its ‘BBB’ peers. The current account is expected to remain positive in 2018 –2019 (1.9% of GDP), which compares with a projected median current account deficit of 0.7% of GDP for ‘BBB” peers. Furthermore, Bulgaria also has a stronger net external creditor position (15.9% of GDP in 2017) than its peers (3.5% of GDP).

Developments in the banking sector have also been stable, consistent with higher economic and credit activity. There is a favourable trend of reduction in the NPL level, although, according to the Agency, it remains high by EU standards.

The factors that could, individually or collectively, lead to positive rating action are stronger medium-term GDP growth potential and progressive convergence towards income levels of higher rate peers.

The main factors that could, individually or collectively, lead to negative rating action are re-emergence of external imbalances and/or deterioration of competitiveness, higher fiscal deficits resulting in deterioration of the public debt trajectory, as well as materialisation of contingent liabilities on the sovereign’s balance sheet, for example from state-owned enterprises.

You can read the full press release here.