Bulgaria’s strong fiscal position, resilient economy and broad reform agenda support the country’s Baa2 rating and stable outlook, Moody’s Investors Service said in an annual report published on October 14.
The report, “Government of Bulgaria — Baa2 Stable, Annual Credit Analysis”, is an update to the markets and does not constitute a rating action, Moody’s said.
“Bulgaria’s rating is underpinned by debt metrics that compare favourably with similarly rated peers, and the stabilization of its external position,” said Marco Zaninelli, a Moody’s Assistant Vice President — Analyst and co-author of the report.
Bulgaria’s fiscal position is strong thanks to the high sustainability of the current level of debt-to-GDP and the authorities’ commitment to the gradual consolidation of fiscal metrics without impairing economic growth, according to the report.
Fiscal consolidation will continue this year and next. Moody’s expects the fiscal deficit to narrow to 1.3 per cent of GDP in 2016 and to 0.9 per cent in 2017. The debt-to-GDP ratio will marginally rise in 2016 before stabilizing in 2017 and starting to decline from 2018 onwards.
Moody’s sees Bulgaria’s real growth decelerating slightly to 2.8 per cent in both 2016 and 2017, from 3.6 per cent in 2015. An almost stable or mildly benign — but less than previously stated – growth outlook for Bulgaria’s European Union trading partners is likely to help keep its exports growing. The pace of export growth is likely to be slower than imports, however.
The Bulgarian government has accelerated its structural reform programme and has made progress in areas such as healthcare, the judiciary, banking, energy and education. This successful reform implementation signals a return to political stability that will support real GDP growth.
In Moody’s baseline projection, debt is expected to peak in 2016/17 at slightly above 26.5 per cent of GDP, and then start declining from 2018.
The asset quality review and stress test exercise carried out by the Bulgarian National Bank (BNB) showed a strong capital position and resilience to shocks from hypothetical negative macroeconomic developments in the banking system. This outcome should restore confidence in the financial system following by the failure of Corporate Commercial Bank AD in 2014, the report said.