site.bta Standard & Poor's Affirms Bulgaria "BB+/B" Ratings, Outlook Stable

Standard & Poor's Affirms Bulgaria "BB+/B" Ratings, Outlook Stable

Sofia, June 4 (BTA) - S&P Global Ratings has affirmed its "BB+/B" long- and short-term foreign and local currency sovereign credit ratings on Bulgaria and the outlook is stable, the Finance Ministry reported on June 3.

The ratings are supported by the government's moderate net debt position, even though the debt increased after the state provided support to the banking sector in 2014. The ratings also benefit from Bulgaria's moderately leveraged external balance sheet.

The agency recalled that in 2015 Bulgaria's economy expanded by 3 per cent, supported by export growth and an acceleration in the absorption of EU funds. This was Bulgaria's highest growth rate since 2009. But S&P continues to believe that the prospects for 2016-2019 are weaker. With the beginning of a new EU budget cycle, there will be a lag before new public investment projects financed by EU structural and cohesion funds can resume momentum. Moreover, the strength of the underlying economic recovery is still uncertain as domestic demand is low. The general government deficit narrowed to 2.1 per cent of GDP in 2015 on an accrual basis, following revenue outperformance as measures to widen the tax base and improve collection were implemented. S&P expects this deficit to gradually reduce to 1.7 per cent of GDP in 2019.

The stable outlook on Bulgaria reflects the balance between the economic and budgetary risks that could potentially arise from the financial sector, against the fiscal space created by still-low general government debt.

The agency said it could consider an upgrade of the ratings if Bulgaria effectively addressed governance issues, thereby boosting its growth potential and attracting higher foreign direct investment to the tradeables sector; or if the economy expanded faster than S&P anticipates, such that general government finances consolidate more rapidly.

On the other hand, S&P could lower the ratings if the domestic financial system required further substantial government support, or if outflows on the financial account resulted in pressures on the balance of payments.