30.05.2022

The international S&P Global Ratings Agency affirmed its 'BBB/A-2' long- and short-term foreign and local currency sovereign credit ratings on Bulgaria. The outlook remains stable.

The Rating Agency expects the Russia-Ukraine military conflict to inflict a shock on the Bulgarian economy and as a result the real GDP growth for 2022 will slow down to 1.6% from 4.3% (according to the agency’s forecast in November) and the budget deficit will double to 5% of GDP. S&P points out that Bulgaria’s strong external and fiscal balance sheets will help mitigate this shock, while the steady inflows of EU transfers will support growth over the medium term.

The stable outlook reflects the S&P expectation that Bulgaria’s economy will not incur major external or fiscal imbalances. Rather, the shock for the economy resulting from the military conflict will be temporary and economic growth will pick up from 2023, backed by EU transfers. S&P expects that this will contain the increase in general government debt, which will remain low in global comparison.

According to S&P, Bulgaria’s economy will be affected by the conflict in Ukraine due to high inflation cutting into disposable income; lower business and consumer confidence domestically; and secondary effects through lower economic activity of its most important trading partners within the EU. According to the Agency the situation with the cut-off gas deliveries from Russia to Bulgaria remains manageable due to ongoing supply diversification efforts and remaining gas reserves, which are low but still sufficient. Nevertheless, according to S&P the high and rising inflation levels represent a challenge for the government. Fiscal pressures are rising net but net government debt remains at below 20% of GDP, which still provides sufficient policy space.

S&P also notes that external risks appear manageable, despite mounting current account deficits on the back of rising deficits in food and energy products, and a sluggish recovery in the tourism sector. The Agency expects that through 2025, high inflows from the previous and current EU Multiannual Financing Frameworks (EU MFFs) as well as additional funds from the new NextGenerationEU recovery package (NGEU) instrument will provide a solid backdrop for firming up economic growth.

It could raise the ratings on Bulgaria in the course of a future accession to the eurozone as well as in case of a significant improvement in the current account balance. S&P notes that they could lower the ratings if the impact on Bulgaria of the conflict in Ukraine were to result in a significant reduction of Bulgaria’s medium-term growth rates.

You can read the full text of the S&P Global Ratings press release here.