The international rating agency Fitch The ratings confirmed the long-term credit rating of Bulgaria in foreign and local currencies BBB with a positive outlook, said the press center of the Ministry of Finance.
The country’s rating reflects the balance between a stable external and fiscal position, a solid political framework for EU membership and the long-standing functioning of the currency board system, on the one hand, and growth relatively lower potential compared to countries with similar ratings due in part to unfavorable demographic developments that could hamper public finances in the long term, the statement said. Fitch Ratings analysts also report a decline in median governance indicators for countries with similar ratings, due to deterioration in government effectiveness and corruption control ahead of 2021.
The positive outlook reflects our nation’s plans to Eurozone membership. According to Fitch Ratings, the short-term negative risks associated with the pandemic have weakened and are offset by the substantial financial resources expected from the EU and its commitment to macroeconomic and fiscal stability (reinforced by the inclusion of the Bulgarian lev / BGN / in the monetary mechanism II).
Bulgarian Finance The Minister is confident that Bulgaria will adopt the euro from 1 January 2024
Fitch Ratings believes the formation of the coalition government in December 2021 significantly reduced political uncertainty, following a string of unconvincing elections last year. Analysts say the coalition parties have put in place a comprehensive program to fight corruption and improve the rule of law while promising increased investment and more effective public spending. The government reaffirmed its objective of adopting the euro by 2024, pursuing a long-standing prudent fiscal policy and good macroeconomic governance.
Fitch Expectations of ratings for BulgariaThe country’s economic growth remains favorable in the coming years, supported by significant EU funds (which, for the period 2022-2027, are estimated at 36% of GDP in 2021). Real GDP growth is expected to reach 3.7% in 2022 and accelerate to 4.5% in 2023.
Bulgaria: Forecasts of economic growth in 2022
The National Recovery and Sustainability Plan (NRSP) is expected to be approved in the coming months, with the first funds likely to be received around mid-2022. Fitch The ratings note the country’s challenge to effectively implement the plan, but in any case believe that the NRSP funds, in combination with other government investment programs, will help increase long-term growth prospects and potential slowing of population decline.
The agency forecasts that average annual inflation will reach 5.2% in 2022, the highest rate since 2008 due to rising commodity prices and to a lesser extent due to pressure from domestic demand.
Bulgaria: 7.8% annual inflation in December
With the will of the authorities to join the Eurozone, the emphasis is on compliance with follow-up commitments after joining ERM II and on compliance with the convergence criteria. In fgeneral, Fitch believes that joining the Eurozone will support the long-term rating of Bulgaria and considers that it can be increased by two steps in the period between joining ERM II and the introduction of the euro.
The rating agency estimates the budget deficit at 3.8% of GDP in 2021, which is more favorable than their previous expectations due to strong revenue growth. The deficit is expected to narrow to 3% in 2023, from 4.6% in 2022. As a result, the debt-to-GDP ratio will rise to 30% but will remain well below the median for countries with similar ratings (60.3%) . The country’s banking sector is considered liquid and well capitalized.
The main factors that could lead to an upgrade are progress towards joining the Eurozone and increase the potential for economic growth. The factors likely to lead to a deterioration are the significant delays in the process of joining the euro zone; sustained increase in public debt; materialization of contingent liabilities in the government budget balance or weaker growth prospects, according to the Ministry of Finance.
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