Fitch keeps Bulgaria’s credit rating unchanged at ‘BBB’, with positive outlook
Fitch Ratings has re-affirmed Bulgaria’s long-term foreign and local currency ratings at ‘BBB’, with a positive rating outlook, as it has February 2021, due to the country’s euro zone entry prospects.
The ratings agency has kept the outlook unchanged despite political instability in recent years that have caused constant delays to Bulgaria joining the euro area. It noted that Sofia has formally requested an extraordinary convergence assessment from the European Commission and the ECB in February.
Fitch did not make any forecast regarding the likelihood of positive convergence reports, but said that if that was the case, Bulgaria could adopt the euro as early as January 2026. The ratings agency said that it “does not expect significant difficulties with the formal approval, given strong political commitment at the EU level.”
Bulgaria met all the euro area convergence criteria, including the price stability one that was a persistent obstacle in recent years, earlier this year and has so far maintained a low enough rolling 12-month average inflation that it could likely satisfy all requirements at the time the convergence reports are issued.
Regarding political stability, Fitch said that the “longevity and stability” of the government coalition backing the minority Cabinet of Prime Minister Rossen Zhelyazkov “successful euro zone entry and progress on [Recovery and Resilience Facility]-linked reforms could support the government beyond end-2025.”
The ratings agency raised its economic growth projection for 2025 to 3.1 per cent, citing a “stronger carry-over effect and improved domestic political situation.”
Although cautious about Bulgaria’s capacity and pace of implementing necessary reforms, Fitch said that an increased EU funds flow would support investment, while nominal wage growth will continue to support private consumption.
The ratings agency said that further progress towards joining the euro area, such as confirmation that Bulgaria has met convergence criteria and greater certainty regarding the likely timing of euro adoption, as well as an “improvement in growth potential” through reforms 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 renewed political instability or a failure in meeting convergence criteria” or weaker economic growth prospects as a result of such adverse political developments.
(Photo: kavitakapoor/flickr.com)
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