Fitch Ratings has revised Bulgaria’s outlook to positive from stable while affirming the sovereign’s long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB’.
The credit ratings agency said that the country’s external finance metrics continued to improve and outperformed the majority of its ‘BBB’ peers.
“The current account surplus was an estimated 4.5% of GDP in 2018, well above previous estimates and helped by a rising services surplus. With private sector external assets also increasing, this has led to a further strengthening of the country’s net asset position,” Fitch said.
The agency said that it expected a further build-up of external assets in 2019-20, although at a more gradual pace, as the current account surplus is set to narrow in line with higher trade deficits.
“Bulgaria has thus far been successful in maintaining external competitiveness via shifts to higher value added production and productivity improvements, with its share of intra-European and global trade rising over the last five years,” the agency said.
Upward revisions to historical GDP figures means that GDP per capita is now at almost 90 per cent the ‘BBB’ median, and is expected to reach the current peer median by 2020, Fitch said. GDP per capita has increased by over 20% in nominal terms in the last five years, although it is still among the weakest in the EU.
Going forward, the main factors that could lead, individually or collectively, to positive rating action were continued improvement in external and fiscal balance sheets, progress toward euro zone accession and favourable growth prospects that lead towards faster convergence with income levels of higher rate peers.
On the negative side, a downgrade could be prompted by the re-emergence of external imbalances, deterioration of external competitiveness or a sharp rise in public debt driven by fiscal easing or the materialisation of contingent liabilities on the sovereign’s balance sheet.