Three International Rating Agencies and the IMF with Positive Assessment of Bulgaria’s Rating

Three international rating agencies improved their assessments of Bulgaria. These are S&P Global Ratings, Moody’s и Fitch Ratings. Here are the ratings.

S&P Global Ratings

The agency upgraded the outlook on Bulgaria’s sovereign credit rating to “positive” from “stable”. S&P affirmed Bulgaria’s long- and short-term foreign and local currency sovereign credit ratings at BB+ and B, respectively. The outlook revision reflects the solid development of the external and fiscal performance, which has lifted Bulgaria’s credit metrics. The economy is more export driven and less leveraged than in the past. The agency expects the economic recovery of our country to continue in 2017 thanks to an increased domestic demand and a smaller share of exports. The improvements are reflected in the labour market, thereby raising disposable incomes and private consumption.

S&P Global Ratings however warns that the level of non-performing loans in the banking system remains high. Bulgaria faces structural constraints related to demographic challenges – emigration of skilled parts of the labour force, and an aging society. The agency could revise the outlook to “stable” if Bulgaria’s balance of payments deteriorated or the financial system needed significant government support or if the downward trend in non-performing loans reversed.

Moody’s

International rating agency Moody’s confirmed Bulgaria’s issuer rating at Baa2 with with stable outlook. The rating is supported by the indicators of sustainable economic development, a good fiscal position and a stable expectation for GDP growth in the medium term.

In 2015 and 2016 Bulgaria’s economy grew by 3.6% and 3.4%, respectively, mainly thanks to rise in private consumption and net exports. In the coming years, Moody’s experts expect continued growth, supported by improved market conditions, strengthened domestic demand and greater absorption of EU funds, which in turn will result in positive contribution of investment to the gross domestic product. Moody’s forecast a GDP growth of 2.9% for both 2017 and 2018.

Another factor for Moody’s positive rating is the Bulgaria’s strong balance sheet – low and declining debt levels and a significant fiscal reserve. The analysis notes the budget surplus in 2016, amounting to 1.6% of GDP, as a result of good revenue collection and lower-than-planned capital expenditures. Furthermore, Bulgaria’s debt is significantly lower than the average for countries with the same credit rating (Baa2).

For the period until 2020 Moody’s forecast a decreasing deficit, a balanced budget and a decline in the government debt-to-GDP ratio to 23% of GDP (compared to a ratio of 29.5% in 2016).

A downgrade of the rating can be triggered in case of new political instability and a deflection from the current sound macroeconomic policy.

Fitch Ratings

Fitch also raised the outlook for Bulgaria’s rating with the assessment that the external metrics of the country have improved significantly.

The outlook was changed to “positive” from “stable”. The agency affirmed Bulgaria’s long-term foreign and local currency credit rating at ‘BBB-’, the country ceiling at ‘BBB+’, as well as the short-term foreign and local currency rating at ‘F3’.

Fitch forecast a budget deficit of 0.6% of GDP for 2017 which is much lower than other countries with “BBB” rating. The agency predicts that Bulgaria’s economy will grow by 3.0% in 2017-2018, which corresponds to the average growth rate for the countries with “BBB” rating.

IMF

At the end of May, the Executive Board of the International Monetary Fund (IMF) discussed and approved the “Assessment of the Stability of the Financial System in Bulgaria”.

According to the IMF, the financial system in Bulgaria is stable and does not pose a risk to public finances.

The IMF gave a positive assessment of the macroeconomic and financial stability and noted the progress of reforms in the financial sector.

More details of the analysis can be found HERE.