Credit ratings agency Fitch has affirmed Bulgaria’s long-term foreign-currency credit rating at ‘BBB-‘ with a stable outlook. Bulgaria’s long-term local-currency rating was kept at ‘BBB’, Fitch said in a statement late on December 19.
Fitch Ratings’ decision to keep Bulgarian debt at investment grade, the third time it did so in 2014, comes only a week after Standard&Poor’s cut Bulgaria’s credit rating to ‘BB+’, its second downgrade of the country’s rating in six months, pushing Bulgaria into the “junk bonds” category for the first time in a decade.
Fitch said that despite the negative hit to Bulgaria’s public finances in the second half of 2014, the country still “compared favourably with rating peers”. Even with Bulgaria’s public debt growing at a faster pace, it was projected to remain below the median 40 per cent of gross domestic product (GDP) debt ratio of ‘BBB’ and ‘BB’ peers, Fitch said.
“The biggest risks to Bulgaria’s debt-to-GDP trajectory include a lack of commitment to fiscal consolidation or further support for the banking sector, neither of which are incorporated into our baseline,” the credit ratings agency said.
Fitch said that the events in the banking sector – the collapse of the Corporate Commercial Bank and state liquidity support for First Investment Bank – were not systemic and the banking sector has stabilised since being targeted by substantial bank runs in June.
On the political side, Fitch said that the formation of a new government meant that “political uncertainty has abated somewhat”, but the diverse policy mandates of the four parties backing Prime Minister Boiko Borissov’s cabinet risked creating “an uncertain policy environment”.
Fitch said that it could raise Bulgaria’s ratings in case of “credible fiscal consolidation” and “sustained improvement in institutional governance and stability of the political environment”, as well as stronger economic growth. On the downside, “significant fiscal slippage”, negative economic shocks and renewed instability in the banking sector could result in a ratings downgrade.