Two of the leading global credit rating agencies have re-affirmed Bulgaria’s sovereign ratings, with Standard&Poor’s maintaining the country’s creditworthiness was one level below investment grade at BB+, while Fitch Ratings has Bulgaria one notch higher at BBB-. Both ratings have a stable outlook.
S&P said that the Bulgarian economy was likely to continue facing challenges to real and nominal gross domestic product (GDP) growth. Although economic growth reached three per cent in 2015 – the country’s highest since 2009 and well above the 0.9 per cent annual average between 2010 and 2014 – S&P said that the outlook for the next several years was weaker.
This was mainly due to the fact the EU’s budget cycle was still in its beginning, meaning that there would be a “lag before new public investment projects financed by EU structural and cohesion funds can resume momentum” – the EU-funded projects were one of the main sources of high economic growth last year.
Bulgaria’s domestic demand has struggled to gain momentum following the 2008-2009 global financial crisis and although nominal GDP is expected to be nearly 20 per cent higher than its 2008 peak, domestic demand will only just reach its 2008 level in 2016, S&P said.
“An important reason for Bulgaria’s weak recovery is that the reversal of nonresident financing of the banking, construction, and property sectors – which propelled growth in the years leading up to the crisis – has not been fully offset by foreign inflows into other sectors, such as tradeables,” the credit ratings agency said.
S&P estimated GDP growth at 1.5 per cent this year, while Fitch was more optimistic with its forecast of 2.1 per cent growth.
Both agencies noted that the banking sector was a weakness to the sovereign rating – S&P focused on the large presence of Greek-owned banks (accounting for about 20 per cent of the assets in Bulgaria’s banking system), while Ftich said that “weaknesses in the governance and supervision of Bulgaria’s local banks, highlighted by the bankruptcy of Corporate Commercial Bank (CCB) in 2014, are a concern.”
The ratings agencies mention sector-wide asset quality review currently under way, the results of which are due to be published in August, with S&P saying that it could “expose vulnerabilities”, but both agencies note that Bulgaria’s banking system appeared to be well capitalized and sufficiently liquid.
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