Fitch affirms Bulgaria's rating at 'BBB-' with stable outlook

By bne IntelliNews July 14, 2013

Fitch Ratings has affirmed Bulgaria's long-term foreign currency credit rating at 'BBB-' and its long-term local currency rating at 'BBB', both with stable outlook, the agency said in a statement. The agency has also affirmed Bulgaria's short-term rating at 'F3' and country ceiling at 'BBB+'.

Fitch's affirmation of Bulgaria's sovereign ratings came at a time when the anti-government protests in the country hit a one-month mark. The ratings agency said that Bulgaria's minority government, which came into power after snap elections in May, could hamper political stability and efforts to pass key reforms. However, Fitch noted it does not expect instability to escalate significantly in the future.

Bulgaria's ratings were supported by its relatively low gross general government debt (18.5%/GDP in 2012 - second lowest in the EU and below the 'BBB' 10-year category median of 35.6%), favourable net external position and well-capitalized and adequately provisioned banking sector. 

On the other hand, the country remains the EU's poorest state, with per-capita GDP at 47% of the EU average in 2012, which weakens its ratings. Fitch expects Bulgaria's GDP to grow 1% in 2013, followed by growth of 1.7% in 2014 and 2.3% in 2015.

Fitch assumes that Bulgaria will continue to pursue prudent fiscal and monetary policies. The ratings agency projects that the country's general government deficit will increase to 1.7% of GDP in 2013-14 from 0.8% in 2012.

Bulgaria's low public debt allows for more accommodative fiscal policy through increased welfare spending, Fitch said. However, lower than projected growth and worsened fiscal performance could lead to a negative rating action. In a recent statement following its regular staff visit to the country, the IMF welcomed the increase in social expenditures approved by the new socialist-led government but only if spending is incorporated in the existing budget envelope. 

Bulgaria's sovereign ratings remain highly sensitive to developments in the euro zone, Fitch underscored. A renewed deterioration in the euro zone debt crisis (which is not Fitch's current baseline scenario) would have a material impact on Bulgaria's economic and financial stability and could lead to a downgrade in the country's ratings.

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