site.btaFitch Ratings Affirms Bulgaria at BBB, Outlook Positive

The Fitch Ratings credit rating agency has affirmed Bulgaria's Long-Term Foreign-Currency Issuer Default Rating at 'BBB' with a Positive Outlook, the Bulgarian Ministry of Finance's press service said on Saturday. 

Bulgaria's ratings are supported by its strong external and public balance sheets versus 'BBB' peers and credible policy framework, underpinned by EU membership and a long-standing currency board. 

The Positive Outlook reflects the prospects for euro adoption, which would lead to further improvement in external metrics. Despite the euro adoption process being delayed beyond January 2025 and renewed political uncertainty, Fitch Raitings considers that there is broad political commitment locally and at the EU level to euro adoption. All legislative measures to address the post-ERMII commitments have been adopted and await implementation, while the Bulgarian National Bank Act was passed in February 2024.

As to Bulgaria’s accession to the euro area, Fitch Ratings notes that according to the Harmonised Index of Consumer Prices, inflation in the country has considerably eased but remains above that of the three best performing EU Member States. Fitch expects that Bulgaria will not comply with the price stability criterion in mid-2024. Bulgaria intends to request a reassessment of its progress on convergence criteria in the second half of 2024, which should allow for eurozone entry later in 2025. In Fitch's view, Bulgaria could comply with the price stability criterion in the fourth quarter of 2024 at the earliest, conditional on inflation developments across the EU.

Bulgaria is expected to meet all other euro-adoption nominal criteria (public finances, interest rate, and exchange rate). Nonetheless, a lack of stable government and potentially lengthy coalition negotiations could delay the eurozone entry beyond 2025. Overall, Fitch considers euro adoption as supportive to the rating. 

In a BTA interview during the 2023 Spring Meetings of the World Bank Group and the International Monetary Fund (IMF), Alfred Kamer, Director of IMF’s European Department said that Bulgaria is on track to join the euro area in 2025, but the budget should not accelerate inflation. He also pointed out that in order to offer better services to its citizens, the government must find a way to secure them, and one of the IMF proposals in this respect is the introduction of a more progressive tax system and an increase in corporate tax.

At the end of March 2024, euro area countries welcomed the progress made by Bulgaria towards adopting the euro. Bulgaria expects an assessment in June 2024 on whether it meets the conditions for the introduction of the single currency. Former Prime Minister Nikolay Denkov’s government said that it was likely that this country would request a further assessment in the autumn, when it is expected to meet the final inflation rate requirement. 

In an interview with BTA a few days ago, Bulgarian National Bank Governor Dimitar Radev said that Bulgaria's entry in the euro area later in 2025, rather than on January 1, is a possible and, at this stage, more likely scenario.