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, but downgraded the ratings outlook to negative.
The ratings agency said that the outlook downgrade reflected its view that Bulgaria’s economic performance will remain under pressure as a result of weak lending by banks, constrained investment growth and high unemployment.
Bulgaria’s economic recovery has been shallow between 2010 and 2012, averaging one per cent. This year, the economy was expected to remain stagnant, with higher public consumption and net exports almost completely offset by anaemic household consumption and private investment growth.
“We also believe that the uncertain political environment and the possibility of early elections will slow the adoption of reforms, weighing on potential economic output,” S&P said.
The ratings agency says that the public pressure for the current government to resign, which the cabinet has resisted so far, “could complicate policymaking and raise the possibility of early elections.”
“That said, we do not see these steps as a significant deviation from Bulgaria’s robust fiscal track record. We therefore expect the government to undertake consolidation measures, over and above those already outlined in the budget, should its expectations of economic performance in 2014 not be met. We believe this will happen even though the current environment may make this task more difficult than when the government undertook similar efforts previously,” S&P said.
The negative outlook indicated at least a one-in-three possibility that the credit ratings agency could lower Bulgaria’s rating within the next two years. This could occur in a scenario of marked deterioration in the policy environment – to the extent that it weighed on the country’s already-weakened growth prospects and adversely influenced private investment flows.
“On the other hand, downward pressure on Bulgaria’s ratings could ease if its political situation stabilises, allowing its institutions to strengthen, which we believe would likely improve its growth prospects,” S&P said.
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