Moody’s affirms Bulgaria’s Baa1 rating amid ‘weakening governance’

Moody’s has affirmed the long-term foreign and local currency sovereign credit ratings on Bulgaria at ‘Baa1’ with a stable outlook, forecasting a “likely adoption of the euro in January 2026.”

The credit ratings agency noted Bulgaria’s low debt burden and strong debt affordability metrics, as well as an expectation for continued robust economic growth in 2025, but said that these positive factors were offset by “a weakening of institutional effectiveness.”

This was “most notably evidenced by the slow and halting progress on key reforms and access to funding under Bulgaria’s EU-funded Recovery and Resilience Plan (RRP),” Moody’s said.

It blamed the seven parliamentary elections held since April 2021, which have “so far failed to produce a government that has proven to be stable and effective, leaving the country to be governed by caretaker governments for the majority of the past four years.”

On the Rossen Zhelyazkov cabinet, which took office last week, Moody’s said that while it could last longer than the two previous regular governments formed in late 2021 and mid-2023, “we see significant risks to its long-term stability and effectiveness in advancing reforms.”

Moody’s said it expected the government to struggle to advance the key reforms holding up the disbursement of the second tranche of RRP funds from the EU. “Many of the potentially most impactful reforms under the RRP are also unlikely to be implemented, to the detriment of Bulgaria’s long-term potential growth rate,” the ratings agency said.

It forecast economic growth of 2.5 per cent in 2025 and 2.7 per cent in 2026, driven principally by private consumption as real wage growth remains very strong in an environment of significant labour shortages and low inflation.

Moody’s Baa1 sovereign rating on Bulgaria is the highest among the three major credit rating agencies, one step above the current BBB ratings by S&P Global and Fitch, which are equivalent to Moody’s Baa2 rating.

(Photo: Steve Ford/sxc.hu)

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