Moody’s raises outlook on Bulgaria’s Baa2 credit rating to positive

Written by on September 1, 2019 in Bulgaria - Comments Off on Moody’s raises outlook on Bulgaria’s Baa2 credit rating to positive

Moody’s credit ratings agency has affirmed Bulgaria’s credit rating at Baa2 and raised the outlook from stable to positive, citing Bulgaria’s stronger fiscal position and improved economic growth prospects.

The Baa2 rating balanced the positive fiscal and macroeconomic trends and Bulgaria’s strong commitment to join the euro zone against the country’s constrained labour supply and skills mismatches, worsening demographics and shortcomings in areas such as corporate governance of state-owned enterprises, Moody’s said.

The decision to raise the rating outlook was in part prompted by Bulgaria’s “strengthening fiscal profile,” which was the result of “a consistently prudent policy stance” that saw Budget surpluses rise from 0.1 per cent of gross domestic product in 2016 to 1.2 per cent of GDP in 2017 and two per cent of GDP in 2018.

Bulgaria has also successfully cut its foreign debt from 2014, when it peaked at 27 per cent of GDP, to 21.2 per cent of GDP at the end of March, the the second lowest in the EU. In 2020, Moody’s forecast government debt falling further to 19 per cent of GDP.

The other factor for the improved outlook was Bulgaria’s “robust growth prospects underpinned by ongoing EU integration and increased competitiveness,” with the credit ratings agency saying that major infrastructure projects in the next several years and Bulgaria’s integration in the European value chains keeping annual real GDP growth at about three per cent.

Additionally, the simultaneous accession to the Exchange Rate Mechanism (ERM2) and the Single Supervisory Mechanism (SSM), which Moody’s expects to take place in 2020, would support sound macroeconomic policies and a further strengthening of institutions, according to the agency.

“While Bulgaria’s current currency-board arrangement offers a remarkably stable framework for economic activity, the action plan to join the ERM2 and SSM as well as the efforts to deepen Bulgaria’s cooperation with the OECD is expected to promote the adoption of additional reforms in the areas of corporate governance, budget planning and public administration efficiency,” Moody’s said.

Sustained positive fiscal and economic trends, as well as further progress with reforms and euro zone accession could lead to a credit rating upgrade, Moody’s said. The positive outlook made a downgrade unlikely in the next 12 to 18 months, but the outlook could be changed to stable should Bulgaria’s macroeconomic and fiscal policy credibility deteriorate, the credit ratings agency said.

(Photo:  José Antonio López/sxc.hu)

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