01.06.2021

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.

According to the agency Bulgaria's economic contraction has been relatively mild so far, mostly due to resilient domestic demand. The slow progress on vaccination and a potential resurgence of the COVID-19 pandemic could mean a slower-than-expected rebound of external demand, which will push some of the expected recovery into 2022. Over the medium term through 2024, high fund inflows from the previous and current EU Multiannual Financing Frameworks as well as additional funds from the NGEU instrument will provide a solid backdrop for Bulgaria's economic growth.

Although the results of the recent elections highlight political fragmentation and confrontational decision-making, the rating agency do not believe that these developments will delay the most important political undertakings, such as progress on eurozone accession, or EU funds absorption.

Even against this challenging domestic political environment and in the course of the pandemic, Bulgaria has retained a solid fiscal position. Starting in 2022, S&P Global Ratings expects that consolidation will narrow deficits further, keeping government debt, net of liquid assets, at a low 20% of GDP over the next years. External risks also appear manageable after several years of external net deleveraging, thanks to recurring current and capital account surpluses, which the rating agency expects to continue.      

The stable outlook reflects that, following a relatively limited contraction in 2020, Bulgaria's economic recovery over the next two years will not incur any external or financial sector imbalances. This should enable quick fiscal consolidation and keep public debt low.  

The rating agency could raise the ratings if Bulgaria's economic recovery coincides with quicker fiscal consolidation or stronger external performance than the currently projected. In the long run, the ratings on Bulgaria could be raised in the course of its accession to the eurozone. The ratings could lowered if the economic contraction proves deeper or the subsequent recovery is delayed. This would likely result in protracted fiscal consolidation and continuously rising net public debt over the next few years. Although unlikely over the medium term, S&P Global Ratings could also take a negative rating action if they observe the emergence of imbalances in Bulgaria's financial sector. 

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