04.07.2014

The international credit rating agency Fitch Ratings Ltd. has affirmed Bulgaria's Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-' and its Long-term local currency IDR at 'BBB'; outlook stable. The Country Ceiling has been affirmed at 'BBB+' and the Short-term foreign currency IDR at 'F3'. This is the second for this year affirmation of the country's ratings by Fitch after the assessment in January. The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are well balanced. According to the agency the main risk factors that, individually or collectively, could trigger a positive rating action include implementation of key structural reforms leading to stronger trend GDP growth and a further, substantial reduction in external indebtedness. The main risk factors that could trigger a negative rating action are linked with a macroeconomic or geopolitical shock that damages the small and open Bulgarian economy or a significant slippage relative to official fiscal targets, or the emergence of instability in the banking sector, eroding Bulgaria's key rating strengths.

According to the agency the latest developments in the banking system are not of a systemic nature and will not endanger the currency board arrangement (CBA), which is backed by a high level of international reserves. Banking sector is well-capitalised, liquid and profitable in aggregate, and non-performing loans have peaked, in Fitch's view.

Trend growth remains subdued compared with 'BBB' peers. Structural bottlenecks continue to prevent the stronger growth rates that would support faster convergence with western European standards of living. Improved prospects for household consumption should support GDP growth in 2014 and in 2015 on the back of stronger economic activity in the Eurozone, Bulgaria's key trading partner.

The Fitch analysts take into account that Bulgaria's gross general government debt (GGGD), at 18.9% of GDP in 2013, was the second-lowest in the EU, and less than half the 'BBB' median of 40%. The report also states that despite widening to 1.5% of GDP in 2013 from 0.8% in 2012, the general government deficit (GGD) remains contained. Fitch expects the GGD to widen further slightly in 2014, before edging lower towards the medium-term objective of 1%. Bulgaria maintains a substantial buffer in the form of the fiscal reserve, worth an estimated 7.5% of GDP in April 2014.

Bulgaria ran a current-account surplus (CAS) equivalent to 1.8% of GDP in 2013. This compares with a 'BBB' median deficit of 1.4%. Fitch expects the CAS to narrow in 2014-15, as improving domestic demand boosts imports. Alongside continued foreign parent bank deleveraging and accumulation of foreign assets by domestic banks, the trend in the current account is supportive of a further reduction in net external debt (NXD), which would be in line with the 'BBB' median.

You can see the full text of the announcement of the rating agency HERE.