Rating agency S&P affirmed Bulgaria ratings at “BBB”; outlook stable

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

The summary report shows an improvement in the estimates of the development of Bulgaria's economy, since domestic demand has been more resilient than the agency expected to the impact of the pandemic. The GDP drop for 2020 has been revised to -4.5%, from -6.5 in the S&P’s forecast from May. Fiscal deficits will remain moderate this year and next, followed by swift consolidation, supported by considerable inflow of EU funds. The rating agency also takes into account the fact that Bulgarian lev was included in the European Exchange Rate Mechanism (ERM) II and Bulgaria joined the EU Banking Union in July this year. It points out that the ultimate accession to the eurozone would strengthen BNB – ECB cooperation and is expected to take several years.

The stable outlook reflects the agency’s expectation that Bulgaria's economy will rebound quickly following the pandemic, with no external or financial sector imbalances to emerge over the next two years. This should enable quick fiscal consolidation and curb the rise of public debt.

The rating agency could raise the ratings if Bulgaria's economic recovery coincides with quicker fiscal consolidation or a stronger external performance than the agency currently projects. The agency could lower the ratings if the economic contraction proved deeper or the subsequent recovery was delayed, which, in turn, would likely result in protracted fiscal consolidation and rising public debt over the next few years.

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