site.btaFitch Affirms Bulgaria's Long-Term Issuer Default Rating at 'BBB-; Outlook Stable

Fitch Affirms Bulgaria's Long-Term Foreign Currency Issuer Default Rating at 'BBB-; Outlook Stable

Sofia, December 5 (BTA) - Fitch Ratings has affirmed Bulgaria's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB-' and 'BBB', respectively. The Outlooks are Stable. The issue ratings on Bulgaria's senior unsecured foreign and local currency bonds have been affirmed at 'BBB-' and 'BBB', respectively. The Country Ceiling has been affirmed at 'BBB+' and the Short-term foreign currency IDR at 'F3', the rating agency said in a press release Friday.

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. However, public debt has been pushed closer to the BBB median following one-off costs to fund Bulgaria's Deposit Insurance Fund, eroding a previous rating strength. In addition, large structural weaknesses in the economy constrain potential for higher trend growth, the press release reads.

The economy has performed better than Fitch expected. With average annual growth for the first three quarters of 2015 of 2.7 per cent, Fitch has revised up its real GDP growth forecast for 2015 to 2.5 per cent, up 1.3pp from the June forecast. For 2016 and 2017, Fitch forecasts real GDP to average 2.6 per cent per cent.

One-off costs to support the repayment of guaranteed deposits in Corporate Commercial Bank (Corpbank) resulted in a fiscal deficit of 5.8 per cent of GDP (ESA 2010) in 2014, without triggering an Excessive Deficit Procedure. For 2015, Fitch has left its fiscal deficit projection unchanged at 3.0 per cent of GDP. Year-to-date fiscal performance shows strong revenue growth above budget plans and expenditure growth contained. For 2016, Fitch forecasts the fiscal deficit to narrow to 2.5 per cent of GDP, as capital spending falls, but to miss the government's target of 2.0 per cent of GDP. Our wider deficit projection assumes a slightly lower revenue forecast, but similar expenditure forecast. No major changes to tax policy have been adopted in the draft 2016 Budget. The government expects the majority of revenue gains to come from concessions and fees.

There are weaknesses in the governance and supervision of Bulgaria's banks, highlighted by the bankruptcy of Corpbank in 2014. The implementation of the Bank Recovery and Resolution Directive reduces the scope for state support. However, further support for the domestic banking sector remains a potential risk to the sovereign balance sheet, in our view. The eventual implementation of a sector-wide Asset Quality Review (AQR) in 2016 will add much delayed clarity over the sector's financial health, and could help restore confidence in the sector, the press release says.

According to the agency, Bulgaria's ratings are constrained by structural bottlenecks, which continue to hamper stronger growth, and limit Bulgaria's convergence with western European standards of living. Bulgaria is amongst the poorest EU states. GDP per capita is below the 'BBB' median and 47 per cent of the EU average.