Moody’s credit ratings agency has confirmed Bulgaria’s credit rating at Baa2 with a stable outlook, citing “supportive debt metrics that compare favourably” to similarly-rated sovereigns and a resilient economy with improving growth prospects in the medium term.
Despite rapid government debt growth in 2014, prompted by the collapse of the Corporate Commercial Bank (CCB) coupled with rising fiscal deficits, Bulgaria’s government debt to gross domestic product ratio remained well below the EU average, the agency said.
“Bulgaria’s debt affordability ratio of two per cent, defined as general government interest payments over revenue, remains materially lower than the medians of 4.9 per cent for EU countries and 9.2 per cent for Baa2-rated countries. The debt position provides significant financial flexibility and shock absorption capacity to the government’s balance sheet,” Moody’s said in a statement.
Risks were further diminished by the relatively long average tenure of the government’s debt, with fixed-rate instruments accounting for 93% of the debt stock and foreign-exchange risk arising from euro debt offerings being contained by the country’s currency board arrangement and the currency peg to the euro.
Moody’s said that Bulgaria’s economy proved resilient in 2014, growing by 1.7 per cent despite CCB’s collapse and deflation, helped by higher consumption and investment. “In 2015 and 2016, we expect that real growth will be constrained by fiscal consolidation efforts and come in at around 1.3 per cent and 1.8 per cent respectively, with risk slightly tilted to the upside for this year, stemming from positive surprise in export activity,” the agency said.
CCB’s failure also “revealed significant institutional deficiencies and lack of adequate supervision” of the banking sector, but Bulgaria was already moving to address these issues with reforms that “should mitigate the risk of bank failures going forward.”
The decision to maintain the stable outlook was underpinned by the government’s strong balance sheet, the gradual economic recovery and reform initiatives against the risk of external shocks such as a Greece exit and political risk, Moody’s said.