Fitch keeps Bulgaria’s credit rating unchanged despite political instability

Five elections in two years have not dampened Fitch Ratings’ expectations about Bulgaria’s creditworthiness, as the global ratings agency re-affirmed late on May 12 the country’s long-term foreign and local currency ratings at ‘BBB’, with a positive rating outlook.

Fitch has rated Bulgaria at BBB since December 2017 and raised the outlook to positive in March 2019, maintaining both unchanged through the coronavirus pandemic, two years of political instability and last year’s spike in inflation, caused by high energy prices as a result of Russia’s invasion of Ukraine.

In its latest ratings decision, the agency re-iterated that the positive outlook reflected the prospects of Bulgaria joining the euro zone, saying that the country’s key political parties committed to adopting the euro.

Fitch noted that it was not political instability but Bulgaria’s high inflation that presented the main risk to the timeline of adopting the euro, with Bulgaria’s caretaker government delaying the target date by one year to 2025.

Despite a decline in recent months, inflation in Bulgaria remained “significantly above the rate of three best performing EU member states, and Bulgaria does not currently comply with price stability criterion.”

“Given considerable uncertainty about the trajectory of inflation, it remains questionable whether Bulgaria will meet the price stability criterion in mid-2024 (the key date for 2025 euro adoption),” Fitch said.

But meeting the other euro zone criteria was “less challenging” and accession to the euro zone would prompt a two-notch upgrade to the country’s credit rating, Fitch said.

The political instability did have an impact on Bulgaria’s economy, slowing down the absorption of EU funds and “progress on Recovery and Resilience Facility (RRF) reforms,” the credit ratings agency said.

As a result, Fitch expected economic growth in 2023 to decelerate to 1.3 per cent in 2023, from 3.4 per cent in 2022. The credit ratings agency projected growth speeding up to 2.6 per cent in 2024, but noted that the “delay in implementation of RRF reforms is the key negative risk factor.”

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 “lack of progress in euro zone accession due to persistent political instability or a failure in meeting convergence criteria” or lower economic growth in the medium term, due to either a large adverse macroeconomic shock or inflation entrenched at high levels.

(Photo: kavitakapoor/

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