International credit ratings agency Standard&Poor’s (S&P) said on August 10 that it raised Bulgaria’s short-term foreign and local currency sovereign credit ratings by one notch to A-2, while also affirming the long-term ratings in foreign and local currency at BBB, with a stable outlook.
“The raising of the short-term ratings reflects the revision of our criteria regarding the link between long-term and short-term sovereign credit ratings (…) As a result, the upgrade does not reflect an improvement in our view of Bulgaria’s short-term creditworthiness,” the agency said in a research note.
“The ratings on Bulgaria reflect our view of the government’s strong track record of appropriate fiscal policy and low gross and net general government debt, as well as the country’s solid medium-term growth prospects despite the expected slowdown in 2012 – particularly if backed by improving absorption of EU funds and other benefits stemming from EU membership,” S&P said.
Somewhat offsetting such strengths are Bulgaria’s relatively low gross domestic product per capita and the significant, if improving, stock of external imbalances and related risks, given the adverse economic backdrop, the agency said.
The stable outlook was a reflection of S&P’s view that Bulgaria would continue to maintain a favourable fiscal position on the back of ongoing budgetary consolidation and structural reforms, despite the likely slowdown in economic growth prospects and against its gross external debt position.
“We could lower the ratings if the country’s fiscal position weakens or its external liquidity position deteriorates significantly, possibly leading to a prolonged decline in income tax revenues or the crystallization of contingent liabilities on the government’s balance sheet,” S&P said.
“On the other hand, we could consider raising the ratings if the government fully implements its structural reform agenda while consolidating the budgetary position further, external conditions for the financial system ease, and exports continue to lead economic growth toward a more balanced structure–while eroding the external debt burden further – leading to higher potential growth,” the credit ratings agency said.
(Photo: Haydn Blackey/flickr.com)