25.08.2020

The international credit rating agency Fitch Ratings affirmed Bulgaria’s long-term foreign and local currency Issuer Default Ratings (IDR) at “BBB” with a Stable Outlook.

Bulgaria's ratings are supported by its strong external and fiscal balance sheets and credible policy framework, underpinned by EU membership and a long standing currency-board arrangement. The ratings are constrained by lower income levels compared with peers and unfavourable demographics, which could hinder growth and weigh on government finances over the long term. Governance indicators are in line with peers.

The Stable Outlook reflects a degree of economic resilience to the coronavirus pandemic owing to a long track record of fiscal prudence, large foreign reserve assets and the prospects of substantial EU transfers over the forecast period. The entry of the country into the Exchange Rate Mechanism (ERM II) and the gradual process towards euro membership will also help anchor macro and fiscal stability in the context of downside risks to growth and rising political uncertainty.

Fitch views Bulgaria's entry into the ERM II and the Banking Union in July 2020 as an important milestone, as it caps a two-year process of successful implementation of reforms and improved resilience of the banking sector. It also reflects the eurozone countries and institutions' commitment to euro enlargement at a time when macro and policy risks have increased substantially in Europe. The focus will now turn to meeting the convergence criteria, as well as other commitments specific for Bulgaria, including continuing the reform efforts. Given the two-year minimum ERM II requirement and the usual 6-12 month assessment period, the Agency think that Bulgaria could adopt the euro in January 2024 at the earliest.

The main factors that could lead to positive rating action/upgrade are: dissipation of macroeconomic and fiscal risks and increased confidence in a post-COVID recovery that is supportive for public finances; progress toward eurozone accession, as well as an improvement in growth potential. The factors that could lead to negative rating action/downgrade are: a prolonged rise in public debt; the materialisation of contingent liabilities on the sovereign's balance sheet; significant deterioration of growth prospects; emergence of significant external imbalances and/or deterioration of external competitiveness.

You can find the full text of the press release here.