04.06.2016

The international credit rating agency S&P Global Ratings affirmed Bulgaria's long-term and short-term foreign and local currency sovereign credit ratings "BB+/B", outlook stable. The ratings are supported by the government's moderate net debt position; however, the agency notes that this indicator registered an increase due to the support provided to the banking sector in 2014. The country's ratings are also supported by the moderate level of external indebtedness.

The agency notes that in 2015 real GDP growth accelerated to 3% - the highest growth rate since 2009, supported by external demand and acceleration in the absorption of EU funds. It expects the growth to slow down in the period 2016 - 2019 due to the required time for the implementation of projects funded with EU funds under the new programming period. Weak domestic demand is identified as a factor creating uncertainties for growth, too. As regards the general government deficit the agency points out that it narrowed to 2.1% of GDP in 2015, following revenue outperformance and improved collection; it expects this deficit to gradually reduce to 1.7% of GDP in 2019.

The stable outlook on Bulgaria reflects the balance between the country's fiscal space created by still-low general government debt against the risks that could potentially arise from the financial sector.

The agency could consider an upgrade if Bulgaria effectively addressed governance issues, thereby boosting its growth potential and attracting higher foreign direct investment to the tradeables sector. It could also consider an upgrade if the economy expanded faster than anticipated, such that general government finances consolidate more rapidly.

On the other hand, the agency could consider lowering the ratings if the domestic financial system required further substantial government support, or if outflows on the financial account resulted in pressures on the balance of payments.

You can find the press release of S&P Global Ratings here.