Fitch re-affirms Bulgaria’s BBB credit rating

Written by on November 17, 2018 in Bulgaria - Comments Off on Fitch re-affirms Bulgaria’s BBB credit rating

Credit ratings agency Fitch has affirmed Bulgaria’s long-term credit rating at ‘BBB‘ with a stable outlook, noting that the country was doing better than its peers with a similar rating on a number of indicators.

The agency’s model assigned Bulgaria a score equivalent to a rating of ‘BBB+’ on the long-term foreign currency rating, but that was adjusted one notch lower to take into account the structural bottlenecks, particularly adverse demographic trends, that constrained potential growth compared with peers.

Fitch said that it expected Bulgaria’s economy to grow by 3.7 per cent this year, largely unchanged from 2017, before slowing down to 3.5 per cent next year and three per cent in 2020.

Growth would be fuelled by domestic consumption, which in turn would benefit from planned increases to the minimum salary next year, and higher investment, financed by EU funds. That investment, however, will be import-intensive, meaning that the net exports are expected to have a negative contribution to gross domestic product for the immediate future.

“Bulgaria’s ratings are supported by its sound external and public finances, credible policy framework aimed towards gradual accession to eurozone membership and stable growth prospects. The ratings are constrained by lower income levels compared with the current ‘BBB’ median, and weak demographics which could constrain growth and weigh on government finances over the long term,” Fitch said.

Looking forward, the main factors that could lead Fitch to raise Bulgaria’s credit rating were stronger medium-term growth potential, progressive convergence towards income levels of higher rated peers and progress towards euro zone accession.

Negative credit action could be prompted by a re-emergence of external imbalances, fiscal deficits or possible contingent liabilities on the sovereign balance sheet, such as from state-owned enterprises.

(Photo: kavitakapoor/flickr.com)

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