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 has also affirmed Bulgaria's short-term foreign currency rating at 'F3' and country ceiling at 'BBB+'.

The affirmation was attributed to the country's strong public finances, reflected by its 18.5% debt-to-GDP ratio - the second lowest in the EU, and the commitment to the currency board arrangement that has been in place since 1997. The Bulgarian state also possesses significant buffers in the form of a fiscal reserve account equivalent to 6.3% of GDP at end-November 2013, and foreign exchange reserves worth 3x base money.

A process of deleveraging has brought down Bulgaria's net external debt to estimated 20.4% of GDP in 2013 from a peak of 49.3% in 2009. Fitch expects private sector deleveraging, small current account surpluses and a moderate economic recovery to reduce external indebtedness towards the 'BBB' median in 2015.

The ratings agency forecasts that GDP growth will speed up to 2% in 2015, from the observed sub-1% rates in 2012-13. Subdued medium-term prospects in key EU trading partners, low demand for bank loans, disrupted business environment and adverse demographic trends hold back Bulgaria's growth potential.

The banking sector remains well-capitalised and supervised, liquid and moderately profitable, Fitch said. However, it noted that NPLs were high at 17% of all loans in the third quarter of 2013 and expects them to grow.

The risks coming out from the fact that Greek banks' subsidiaries still hold significant percentage of Bulgaria's banking system total assets have receded, according to Fitch. 

Factors that could contribute to a negative ratings actions are a prolonged stagnation in GDP or a severe economic or financial shock; political instability that has a material impact on growth prospects or the structural reform agenda.