S&P Global Ratings has raised its long- and short-term foreign and local currency sovereign credit ratings on Bulgaria to ‘BBB/A-2’, while maintaining a positive outlook.
According to the S&P assessment, Bulgaria’s economy was growing without building macroeconomic imbalances, its fiscal and external balance sheets were strong, and progress on entering the Exchange Rate Mechanism II (ERM2) was “steadfast.”
The decision to maintain the positive outlook reflected Bulgaria’s “progressively strengthening fiscal and external position,
which we project to continue as the country grows resiliently in a weaker external economy.”
S&P said it could raise the ratings further should the economy continue to grow without reversing fiscal gains or if the country’s external performance “strengthened beyond our expectations.”
“We could also raise the ratings if Bulgaria further entrenches structural and institutional improvements, for example on its path toward euro adoption,” the credit ratings agency said. “We think that the country has completed its own deliverables under its action plan toward ERM2 and Banking Union membership, but the ultimate accession decision is not fully in its control.”
S&P said that, in its understanding, the key remaining issue is addressing the capital needs at two domestic banks, which the European Central Bank identified in this year’s asset quality review.
“We think the ultimate ERM II accession decision and timeline crucially will hinge on political considerations not necessary within Bulgaria’s control, because the eurozone and Denmark’s finance ministers, and the ECB, will decide. While Bulgaria’s performance under quantitative criteria is strong, support elsewhere in Europe could hinge on the perception of institutional convergence and the strength of the banking sector,” the credit agency said.
“However, political considerations aside, we think that the country’s progress so far will enable it to join the ERM II in 2020, which would support our view of the credibility of its monetary policy framework,” S&P said.
In raising Bulgaria’s rating, S&P Global joined the other two major international credit assessors, which rate Bulgaria on the second-lowest rung of investment grade. Fitch raised its rating to BBB in 2017 and Moody’s rates Bulgaria at Baa2.
All three ratings have a positive outlook, indicating the potential for further rating upgrades in the next 12 months, which are likely to based on the outcome of Bulgaria’s process to join ERM2, the euro zone’s waiting room, and the ECB’s Single Supervisory Mechanism.
(Photo: Haydn Blackey/flickr.com)