Fitch keeps Bulgaria’s credit rating unchanged at ‘BBB+’, raises outlook to ‘positive’
Fitch Ratings has affirmed Bulgaria’s long-term foreign and local currency ratings at ‘BBB+’ and raised its rating outlook to positive.
The credit ratings agency said its decision to lift the outlook was the result of the “reduction in political uncertainty following the April general elections that led to the formation of a single-party majority government, likely ending a prolonged period of unstable coalition governments.”
“This offers the opportunity for progress on structural reform that could support potential growth, higher levels of wealth and improve governance, building on Bulgaria’s accession to the euro zone on January 1 2026,” Fitch said.
The credit ratings agency cut its estimate of Bulgaria’s economic growth to 2.4 per cent, compared to 2.9 per cent in its previous ratings update in March, but noted that Bulgaria consistently outperformed the euro area growth rate in recent years, despite “various exogenous shocks and subdued EU growth.”
It did caution that there were signs of the country’s economy overheating, such as macroeconomic imbalances that were the result of very strong nominal wage growth over the past three years, which led to a surge in household consumption, reflected by the significant widening of the current account deficit.
The wage growth has also fuelled inflation, which Fitch forecast at 4.9 per cent this year and expected to remain above projected medians of other countries it rates in the BBB range.
On the expected Budget deficit, Fitch said that it forecast a general deficit of 4.5 per cent, below the government’s 5.4 per cent target. It also noted that Bulgaria’s fiscal stance would remain loose in the coming years, as the government pursued gradual fiscal consolidation, as opposed to drastic spending cuts.
This will also lead to continued increases in the debt-to-GDP ratio, which will still remain well below that of other EU member states and other countries with comparable credit rating. A positive consequence of adopting the euro was a decrease in annual debt payments, as Bulgaria now fully benefits from the euro zone’s favorable financing conditions, Fitch said.
The biggest risk to Bulgaria’s growth prospects was deterioration of macroeconomic imbalances or a sharp drop in economic growth, as well as a significant increase in general government debt-to-GDP ratio over the medium term.
On the upside, an upgrade was possible if Bulgaria was to amass a record of of structural reforms implementation or show signs that macroeconomic imbalances would ease, Fitch said.
(Photo: kavitakapoor/flickr.com)
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