Moody’s: Bulgaria’s rating supported by diversification of economy, strong finances

Written by on July 4, 2013 in Bulgaria - No comments

Credit ratings agency Moody’s said in its annual report on Bulgaria that the country’s Baa2 rating is supported by the continued diversification of its economy and healthy government finances, but was constrained by the currency peg and risks stemming from close economic and banking ties with Greece.

Moody’s said that its credit rating was based on four factors – economic strength (qualified as moderate in Bulgaria’s case), institutional strength (moderate), government financial strength (high) and susceptibility to event risk (moderate).

Bulgaria’s economy was relatively small, with average incomes ranking in the middle of incomes globally, but with average wealth less than half the euro zone average, Moody’s said. “Ongoing and gradual diversification is reducing the economy’s concentration in natural resource-based exports, which should improve its stability and reduce its cyclicality,” the report said.

In terms of institutional strength, Bulgaria had improved as part of its EU accession process and had a predictable macroeconomic policy framework. “Nonetheless, Bulgaria’s government effectiveness and particularly the rule of law score relatively low on international surveys conducted by the World Bank, in part due to the need to further tackle corruption,” Moody’s said.

The high assessment of the government’s financial strength reflected lower debt levels than in the euro zone, but the report’s authors expected the government’s financial position this year to be “undermined by voter pressure to increase social spending.”

“The moderate susceptibility to event risk mainly reflects the economy’s extensive ‘euroisation’, the significant presence of Greek financial institutions in the local banking system, high external debt and weak external liquidity, which pose risks in the highly unlikely event of a change in the monetary policy regime,” the report said.

“The electorate has become increasingly disgruntled with austerity measures, and voter disenchantment has been expressed through street demonstrations in recent months. Although such public pressure may slow the pace of fiscal consolidation and force early parliamentary elections, all the major parties remain committed to prudent fiscal policies.”

(Photo: Sanja Gjenero)

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