22.07.2011

Moody\'s Investors Service today upgraded Bulgaria\'s government debt ratings to Baa2 from Baa3, reflecting its ongoing fiscal discipline and improving institutional strength as well as the financial system\'s relative resilience in a volatile regional environment.

Moody\'s said today\'s upgrade of Bulgaria\'s government ratings was motivated by effective fiscal consolidation supplemented by recent structural reforms, which are expected to maintain Bulgaria\'s very low debt burden by leading to a further reduction in the general government deficit to below the 3% Maastricht limit in 2011 and roughly balanced budgets in the years to come.

The Agency takes account of the strengthened institutional capacity thanks to determined efforts to increase the absorption of EU funds and to reform systems such as the judiciary and the police in order to improve the rule of law.

Moody\'s highlighted the strong liquidity and capital buffers of both the financial system and the government, which in Moody\'s opinion are sufficient to absorb shocks deriving from regional volatility.

\"We expect the general government financial balance to show a deficit below 3% of GDP in 2011, as evidenced by the results already achieved in the first half of the year,\" said Moody\'s. \"Moreover, the implementation of the latest pension reforms and the new \"Financial Stability Pact\" are likely to help keep the government finances close to balanced over the medium- to long-term.\"

Moody\'s acknowledge the efforts of the Finance Ministry which has provided strong guidance on such important milestones as the establishment of the new fiscal rule and tighter procedures for expenditure control. A further factor underlying Bulgaria\'s upgrade is that the central bank has been very effective managing its currency board and implementing sound prudential bank supervision.

Aside from the new Financial Stability Pact, which is a strict but simple fiscal rule, the new Convergence Programme outlines a plan to virtually eliminate the budget deficit in the next three years, and the National Reform Programme eyes structural reforms intended to overcome the challenges  faced by fiscal stability and productivity over the longer term resulting from the ageing of the population and the weakened labour force, Moody\'s Investors Service pointed out. The Agency noted that Bulgaria\'s government finances and its banking system are expected to weather the impact of the Greek debt crisis thanks to substantial liquidity and capital buffers.