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Source: EPA / BGNES
Moody’s raised Bulgaria’s long-term foreign and local currency rating from Baa1 with a stable outlook.
Moody’s rating upgrade reflects increased institutional capacity and efficiency in policy making, leading the country to the final stage prior to eurozone membership. The upgraded rating also takes into account the lower risk in terms of foreign currency debt, significant fiscal reserves and expectations that the favorable dynamics of budget indicators and debt in the period after the pandemic shock will support the strong fiscal position.
The EC proposes that Bulgaria receive 511 million euros under the SURE instrument
The stable outlook shows the rating agency’s expectations that fiscal indicators will remain stable even in an unfavorable scenario, above the median for countries with a “Baa1” rating. The stable outlook also takes into account the balance between the improvement of the economic and institutional environment in Bulgaria and the existence of key challenges for the rating, mainly related to the negative impact of demographic processes in the country on potential growth in the medium term. and the need to continue reforms in the struggle. with corruption, the independence of the judiciary and the rule of law.
The first factor for rating improvement is based on Bulgaria’s progress towards accession to the euro area and the corresponding strengthening of institutional capacity and effective policy development. Analysts evaluate Bulgaria’s entry into Monetary Mechanism II (CMM II) as one of the last decisive steps before joining the eurozone. They also point out that approval to join VM II, amid the current pandemic crisis, is the result of an extensive reform agenda. At the same time, Moody’s recognizes the close cooperation established between the ECB and the BNB in the field of banking supervision and believes that it will further contribute to improving the regulatory environment and encourage the adoption of best practices.
The second factor for rating improvement is related to the strengthening of the country’s fiscal and credit profile, despite the negative impact of the coronavirus pandemic. Moody’s analysts note that in the case of Bulgaria, the highly reliable currency board, which has existed for more than two decades, mitigates the risk derived from the high share of the country’s foreign currency-denominated debt (in 2019, the 80% of public debt). Bulgaria’s debt is denominated in euros).
Fitch reaffirms our BBB credit rating
The country’s credit profile is also supported by the government’s strong fiscal stance. After four years of growing structural budget surpluses, the debt-to-GDP ratio reached 20.4% in 2019, which is the second lowest level in the European Union after Estonia. There has also been an improvement in terms of more favorable financing opportunities, with the ratio of interest payments to budget revenues falling to 1.5% in 2019 from 2.5% in 2016. Moody’s also expects the fiscal reserve to remain stable at around 10% of GDP.
According to the Agency, the pandemic will have a negative impact on the public finances of our country. The decline in GDP is estimated at 3.5% in 2020, followed by a recovery of 2.7% in 2021. The anticipated decline and the need to support economic activity to cope with the pandemic will put pressure on revenues and budget expenditures and will generate deficits. 3% of GDP in 2020 and 1.6% in 2021. Moody’s expects public debt to increase to 23.9% in 2020 and 24.2% in 2021, then gradually decrease to 23.5% in 2022
The Agency notes that the main factors that could lead to an increase in the outlook and rating of the country are related to significant improvements in the quality of work of the institutions and the sustainable convergence towards a higher standard of living and institutional support that will support income to the country. the euro zone. Factors that could lead to a negative outlook and downgrade include a possible significant and lasting deterioration in the government’s strong fiscal position and prospects for long-term economic growth, as well as a weakening of the institutional framework.
You can read the full content of the press release here.
