site.btaStandard&Poor's, Fitch Affirm Bulgaria's Credit Rating with Stable Outlook

Standard&Poor's, Fitch Affirm Bulgaria's Credit Rating with Stable Outlook

Sofia, December 3 (BTA) - The international credit rating agencies Standart&Poor's (S&P) and Fitch affirmed Bulgaria's credit rating with stable outlook.

S&P Global Ratings has affirmed its "BB+/B" long- and short-term foreign and local currency sovereign credit ratings on Bulgaria with stable outlook, the Finance Ministry reported Friday.

The ratings are supported by the government's moderate net debt position, projected at 18 per cent of 2016 GDP. They also benefit from Bulgaria's moderately leveraged external balance sheet following half a decade of external deleveraging, led primarily by the financial sector. The ratings remain constrained by the relatively low GDP per capita and the weak institutional environment.

The agency notes that in 2016 Bulgaria's economic recovery has been accelerating, alongside improvements in the labour market, a narrowing government budget deficit, and a current account surplus. These improvements, however, could be thwarted if the increased political uncertainty following the recent government resignation hampers economic recovery or leads to an overly lax fiscal stance.

The stable outlook on Bulgaria reflects the balanced risks from fiscal and economic uncertainty amid the political standstill, which will potentially last for several months, against expectations that fiscal space is preserved and economic recovery continues.

The conditions, under which the agency would upgrade Bulgaria's credit ratings, include effectively addressing the problems in governance, which can improve the potential for economic growth, the Finance Ministry noted. The ratings could also go up in the event of fiscal improvement that surpasses the agency's expectations, and if the country manages to further reduce external vulnerabilities and liabilities.
On the other hand, the ratings could be lowered if the domestic financial system requires further substantial government support, or if outflows on the financial account resulted in pressures on the balance of payments. A weaker-than-projected
fiscal consolidation path, with significant expenditure slippage or a regress
on institutional advancements, could also put pressure on the ratings.

Fitch Ratings has affirmed Bulgaria's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at "BBB-", with stable outlooks, the Finance Ministry reported Saturday. The Country Ceiling has been affirmed at "BBB+" and the Short-Term Foreign and Local Currency IDRs at "F3".

Bulgaria's ratings are supported by its sound public finances and favourable and improving external finances. However, a pattern of unstable governments cloud policy outlook, potentially holding back effective structural reform.

Fitch's new macroeconomic baseline forecasts average real GDP growth of 2.8 per cent for 2017-2018, revised up from 2.4 per cent six months ago.

Higher than planned receipts in tax revenues and contained government spending indicate the likelihood of a favorable budget outperformance in 2016. Against the government's target deficit of 1.9 per cent, Fitch now expects a deficit of 0.9 per cent of GDP (ESA 2010) for 2016.

Bulgaria's rating is further supported by its favourable external finances. Sustained current account surpluses in recent years and high level of foreign reserve assets covering 7.5 months of current external receipts (2015), provide stability to the country's existing currency board regime.

The main factors that could, individually or collectively, trigger positive rating action, according to Fitch, include stronger potential GDP growth and progressive convergence towards peer income levels; sustained improvement in external finances; credible fiscal consolidation that supports stability in the public debt burden.

According to the agency, the main risk factors that, individually or collectively, could trigger negative rating action are materialisation of contingent liabilities on the sovereign's balance sheet from state-owned enterprises and/or banking sector; higher fiscal deficits that result in a rapid deterioration of the public debt trajectory.