23.08.2019

Fitch Ratings has affirmed Bulgaria’s long-term foreign- and local-currency credit rating at ‘BBB’ with a positive outlook.

Bulgaria's ratings are supported by its sound external and public finances, credible policy framework aimed towards gradual accession to euro membership and stable growth prospects. The Agency believes the Bulgarian authorities and European partners remain committed to finalizing the process to join ERM II and the Banking Union by end 2019, with euro adoption in January 2023 at the earliest.

Fitch forecasts average real GDP growth of 3.3% in 2019-2021, broadly in-line with the ‘BBB’ median. In 1H2019 economic growth outperformed expectations, primarily due to a stronger-than-projected recovery of exports. Private consumption has remained resilient, supported by strong average wage growth. Growth momentum, however, is expected to slow in the near term as the external environment becomes more challenging given weak economic outlook of key trading partners. On the upside, continued large inflows of EU funds will serve as a cushion to adverse economic developments.

Fitch points out that Bulgaria has strong external finance metrics and expects that the country will continue to post current account surpluses in 2019-2021 averaging 3.3% of GDP. This, in combination with strong capital transfers related to EU funds, will lead to a further improvement in the country´s net external creditor position.

A favourable macroeconomic environment and cautious policies continue to support a strong fiscal position, with Fitch forecasting an average fiscal surplus of 0.2% of GDP in 2019-2021. Fiscal risks are mitigated by a strong track-record of fiscal prudence, high buffers and low and declining debt levels. Fitch forecasts general government debt to fall to 17.9% of GDP in 2021, compared to ‘BBB’ median of 39.4%.

According to the Agency, the banking sector remains stable, supported by adequate capitalisation and strong liquidity, while asset quality continues to improve (the non-performing loan ratio fell to 7.4% in 1Q19 the lowest level in almost a decade).

The factors that could, individually or collectively, lead to positive rating action are progress toward eurozone accession, improvement in growth potential and continued improvement in external and fiscal balance sheets.

The main factors that could, individually or collectively, lead to negative rating action are re-emergence of external imbalances and/or deterioration of competitiveness, аs well as sharp rise in public debt driven by fiscal easing or the materialisation of contingent liabilities.

You can read the full press release here.