14.04.2025

Fitch Ratings has affirmed Bulgaria’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at ‘BBB’ with a Positive Outlook.

Bulgaria’s ratings are supported by its strong external and public balance sheets versus ‘BBB’ peers and credible policy framework, underpinned by EU membership and a long-standing currency board. Fitch Ratings also points out that low labour productivity and unfavourable demographics weigh on potential growth over the long term. The Rating Agency notes that the recent record of unstable coalition governments has affected reform implementation.

The Positive Outlook reflects the prospects for euro adoption, which would lead to further improvement in external metrics.

In February 2025, Bulgaria submitted a request to the European Commission and the ECB for an extraordinary convergence assessment after meeting all nominal Maastricht criteria, including the price stability criterion. The reports will likely be released in early June and, if the assessment is positive, will allow the adoption of the euro from January 2026. Fitch considers euro adoption as supportive of the rating.

Fitch has revised its 2025 growth forecast up to 3.1%, from 2.5% expected in October 2024, due to the stronger carry-over effect and improved domestic political situation. Strong nominal wage growth will continue to support private consumption. The Agency points out that in spite of remaining cautious about the capacity and pace of reform implementation, it expects EU funds flows to increase and to support investment activity.

The Rating Agency expects HICP inflation to average 3.9% in 2025, up from 2.6% in 2024. Fitch Ratings does not expect the increase in inflation to derail Bulgaria's euro area entry. The Agency expects inflation to ease to 3% in 2026.

Fitch estimates that the general government deficit will widen to 2.8% of GDP in 2024, from 2% in 2023, as a result of the higher wage bill and social spending. Fitch Ratings forecasts a budget deficit of 2.7% in 2025, reflecting further increase in public sector wages, deliveries of military equipment (0.5% of GDP) and some revenue-enhancing measures. The Agency expects the deficit to narrow to 2.4% in 2026 due to their assumptions of higher defence spending and lower expected EU fund inflows.

Factors that could lead to positive rating action: Confirmation that Bulgaria has met convergence criteria and greater certainty regarding the likely timing of euro adoption, as well as an improvement in growth potential.

Factors that could lead to negative rating action: Lack of progress in euro area accession due to renewed political instability or a failure in meeting convergence criteria, as well as weaker economic growth prospects.

You can read the full press release here.