S&P confirms Bulgaria’s credit rating at BBB

Written by on December 14, 2012 in Bulgaria, Business, News - No comments

Credit ratings agency Standard&Poor’s said on December 13 that it affirmed Bulgaria’s and short-term foreign and local currency sovereign credit ratings at BBB, with a stable outlook.

“The ratings on Bulgaria reflect our view of the government’s strong track record of fiscal prudence; low and declining deficit and debt stock, despite subdued economic growth; and the country’s strong medium-term growth prospects, particularly if they are backed by increased private investment; and improving absorption of EU funds,” S&P said in a statement.

Offsetting these positive factors were the low per capita gross domestic product, “its high, albeit declining, external financing needs, and limited monetary flexibility owing to the country’s currency board arrangement.”

Despite Bulgaria’s slow economic recovery, driven mainly by exports, S&P expected Bulgaria’s economy to grow by 1.7 per cent next year, rising to an average of two per cent in 2013/15.

“Though the government has stated that it is postponing plans to join the European Exchange Rate Mechanism (ERM II), the precursor to entry into the European Economic and Monetary Union (euro zone), we do not expect this to lead to a change in its commitment to sound economic policy,” the credit rating agency said.

While the country’s banking sector had paid down their external debt (largely owned to parent companies) and had solid capital adequacy ratios, Bulgarian lenders were mainly owned by foreign banks – thus problems affecting their parent banks might have knock-on effects on Bulgarian subsidiaries.

“The stable outlook balances our view of Bulgaria’s macro-financial stability, favorable fiscal position, and economic growth prospects against its relatively low levels of wealth, external debtor position, and limited monetary flexibility,” S&P said.

Downward pressure on the ratings could come from weakening fiscal position or external liquidity deteriorating, but should external conditions ease further and the economy grow strongly, a hike of the credit rating could be considered, the agency said.

(Photo: Haydn Blackey/flickr.com)

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