Bulgaria’s economy was expected to grow by 2.9 per cent this year and 4.3 per cent in 2022, according to a forecast by credit ratings agency S&P Global Ratings.
The economic contraction in Bulgaria in 2020, at 4.2 per cent, was relatively mild in a global and regional comparison, S&P said in a research note dated May 31, which Bulgaria’s Finance Ministry made available on June 1.
Bulgaria’s Covid-19 restrictions have been less stringent than other European countries, which has limited the fallout for domestic demand, the main reason why the country’s economy shrank less than it might have otherwise, according to the research note, which did not constitute a rating action.
S&P noted that vaccination efforts lagged those of most other European countries. “Although vaccination rates might pick up over the coming months, the delay means the timing and strength of economic recovery is less visible,” the ratings agency said, which will push some of the expected recovery into 2022.
“Over the medium term through 2024, high fund inflows from the previous and current EU Multiannual Financing Frameworks as well as additional funds from the Next Generation EU instrument will provide a solid backdrop for Bulgaria’s economic growth,” S&P said.
The credit ratings agency said that the results of parliamentary elections in April highlighted political fragmentation and confrontational decision-making. It was uncertain whether the snap elections in early July will improve the chance of a majority government coalition, leading S&P to expect “the political decision-making process to remain complicated over the coming years.”
That said, the credit ratings agency did not expect these developments to delay “the most important political undertakings, such as progress on eurozone accession, or EU funds absorption.”
S&P currently rates Bulgaria at BBB/A-2 with a stable outlook. The ratings agency said that it could raise its ratings if Bulgaria’s economic recovery coincided with quicker fiscal consolidation or stronger external performance than currently projected. In the longer term, a credit upgrade could also come as the country draws closer to joining the euro area.
On the downside, a downgrade could be the result of deeper economic contraction or delayed economic recovery. “Although unlikely over the medium term, we could also take a negative rating action if we observe the emergence of imbalances in Bulgaria’s financial sector,” S&P said.
(Photo: Haydn Blackey/flickr.com)
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