S&P Global re-affirms Bulgaria’s credit rating, positive outlook

S&P Global Ratings has re-affirmed its long- and short-term foreign and local currency sovereign credit ratings on Bulgaria at ‘BBB/A-2’, as well as its positive outlook, saying that it remained optimistic regarding the country’s prospects of euro zone accession.

The credit ratings agency’s statement late on May 24 said that “there is at least a one-in-three likelihood that Bulgaria will accede to the euro zone over the next 24 months.”

S&P said that despite renewed political instability, which prompted another parliamentary election on June 9, the country’s sixth in three years, the credit ratings agency’s base scenario was that “political deadlock will be avoided, paving the way for Bulgaria’s eurozone accession in the next 18 months.”

Should that scenario materialise and a stable government emerge “relatively quickly” following the election, S&P projected “limited delays” to Bulgaria’s euro area accession.

The credit ratings agency noted that Bulgaria still did not meet the inflation criterion for joining the euro zone, but “the gap to the threshold is narrowing” and said that there was “scope for political compromise on the matter over the next few months,” similar to the Eurogroup’s decision to allow Croatia to join the euro area in 2022.

“Even if Bulgaria were not to accede to the euro zone in 2025, we think that ultimate accession would likely be delayed only until Jan. 1, 2026,” the credit ratings agency said.

S&P said that Bulgaria’s economy faced long-term structural challenges, but the near-term outlook remained favourable, projecting 2.1 per cent growth in 2024, rising to an average of more than three per cent growth in 2025-2027.

The credit ratings agency said although there was a rapid reduction in inflation over the past year, any further inflation decline over the next few months would likely be limited.

Going forward, S&P Global re-iterated that it could raise Bulgaria’s credit ratings “potentially by several notches, if Bulgaria became a euro zone member,” as that would both improve monetary policy effectiveness and reduce risks to external liquidity.

On the downside, the outlook could be downgraded if the prospect of Bulgaria joining the euro zone became less likely, either as a result of renewed domestic political instability, renewed inflationary pressures or external factors in the Eurogroup of euro zone member countries.

(Photo: Haydn Blackey/flickr.com)

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