Two of the leading global credit rating agencies have re-affirmed Bulgaria’s sovereign credit ratings, with Fitch Ratings maintaining the country’s creditworthiness at BBB with a stable outlook, while S&P Global has Bulgaria one notch lower at BBB-, but upgraded its outlook from stable to positive.
Both agencies rate Bulgaria’s debt at investment grade, with S&P upgrading the country to that bracket in its previous ratings decision in December 2017.
Fitch said in a statement on June 1 that Bulgaria outperformed many of its BBB peers on several indicators, with the agency’s model projecting the country’s rating as BBB+, but the final rating was one notch lower to “reflect Fitch’s view that structural bottlenecks, particularly labour market rigidities and adverse demographic trends, constrain potential growth compared with peers.”
In its own statement on June 1, S&P that the outlook revision indicated that the Bulgarian government has “successfully improved domestic financial conditions and have strengthened their fiscal and external buffers.”
“We could raise the ratings over the next 12-24 months if we observe further reductions in the level of nonperforming loans in the Bulgarian banking sector, combined with additional progress on normalizing the credit channel, which should benefit economic growth. We could also raise the ratings if the government’s fiscal performance strengthens beyond our current projections,” S&P said.
“Finally, we would also raise the rating if the Bulgarian lev were accepted to the European Central Bank (ECB) exchange rate mechanism (ERM 2) monetary framework, which we think would further bolster policy credibility,” the credit ratings agency said.
Bulgarian government officials have repeatedly said that the country will make a formal application to join the ERM 2 before the end of its six months of holding the rotating EU presidency on June 30.
Finance Minister Vladislav Goranov re-iterated that target on June 1, saying that he saw no reason to put brakes on the process, despite criticism from the European Commission in its euro convergence report, issued in May.
“We are in intensive communication on expert level with representatives of the European Central bank, euro area member states and the European Commission. We are working on a road map and will soon finish this process,” Goranov said, as quoted by Bulgarian National Radio.
S&P took note of Bulgarian policymakers’ stated intention to apply for ERM 2 in 2018. “If they can garner political backing from key eurozone parties, we think that the application could be filed in the coming months. Although we anticipate that Bulgaria will face some political obstacles in persuading all eurozone members to support its application, we understand that it is fulfilling the macroeconomic and fiscal criteria for the euro zone,” the agency said.
The Commission’s convergence report in May said that although Bulgaria met the price stability, public finances and long-term interest rates criteria, “on the basis of selected indicators related to the business environment, Bulgaria performs worse than most euro-area member states.”
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