Fitch re-affirms Bulgaria’s ‘BBB’ credit rating, with positive outlook

Fitch Ratings has re-affirmed Bulgaria’s sovereign long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB’, maintaining a positive rating outlook.

The credit ratings agency said that the positive outlook was due to the “prospect of euro adoption, which would lead to significant improvements in external metrics.”

It noted that “despite renewed political instability, we believe the authorities remain committed to euro adoption by 2024, with risks around the timeline mainly tied to exogenous shocks.”

“At present, we do not expect a delay of more than one year in euro accession if the country fails to meet convergence criteria in 2023, as we consider that there is a clear commitment at EU level to expedite the process,” the credit ratings agency said.

While Fitch did not appear concerned about political instability endangering Bulgaria’s prospects of euro zone accession, it did say that the withdrawal of one of the four partners in the coalition government could put the disbursement of EU funds under the NextGenerationEU recovery and resilience plan at risk.

The funding is contingent on reaching certain milestones, including a number of reforms that require legislative amendments being passed before the end of the year.

Fitch said that there was little risk that the milestones required for the first tranche of 1.4 billion euro to be disbursed as expected in the fourth quarter of the year would be missed, but subsequent tranches could be affected and that “could complicate medium-term fiscal plans.”

The ratings agency also downplayed the impact of the halt of natural gas deliveries from Russia, saying that “a new interconnector with Greece and new supply agreements with other countries will largely help cover the gap by winter 2022 (when gas demand increases sharply).”

“Combined with Bulgaria being exempt from EU oil sanctions against Russia until 2024, this reduces the risks of energy supply disruptions that could significantly affect households and industry, although in such a scenario indirect impacts would still create significant macro challenges,” Fitch said.

The credit ratings agency lowered its economic growth estimate for Bulgaria to three per cent this year and 4.2 per cent in 2023, compared to earlier projections of 3.7 per cent and 4.5 per cent, respectively.

Fitch said that progress towards joining the euro area and “an improvement in growth potential”, either through structural reforms to improve the business environment or effective use of EU funds, could lead to upgrading Bulgaria’s credit rating.

On the downside, negative action could be prompted by “a significant delay in the timeline of eurozone accession” or a “large adverse macroeconomic shock, for example due to energy rationing in Europe.”

(Photo: kavitakapoor/

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