Fitch Ratings has affirmed Bulgaria's long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB-' and 'BBB', respectively, with a stable outlook. The country ceiling has been affirmed at 'BBB+' and the short-term foreign currency IDR at 'F3'.
Bulgaria's ratings are supported by its stronger external finances relative to its 'BBB' range peers. A current account surplus is accompanied by a high level of foreign reserves, which provide stability to its existing currency board regime. In addition, large structural weaknesses in the economy constrain potential for higher trend growth.
According to Fitch, the economy has performed better than expected in 2015, which causes the higher forecast of the economic growth which is mostly driven by strong domestic demand. The expectations for the next two years have been revised upwards, with growth expected to be more balanced. The current account will remain positive, with the expectations for the country being more favourable than the rest of the peers. As to the deterioration of the budget stance in 2014, the one-off costs to support the bunking sector will not trigger an excessive deficit procedure.
The stable outlook reflects Fitch's assessment that upside and downside risks to the rating are currently balanced. According to Fitch, the main risk factors that, individually or collectively, could trigger negative rating action are re-emergence of instability in the banking sector, which may increase pressure on government fiscal finances and economic growth, higher fiscal deficits than projected that threatens the long-term sustainability of public finances, as well as persistent shortfall in economic growth relative to peers. The main factors that, individually, or collectively, could trigger positive rating action, according to Fitch, include credible fiscal consolidation that supports the long-term sustainability of public debt dynamics, stronger trend GDP growth and progressive convergence towards average EU income levels and sustained improvement in governance and strength of institutions.
