JCR raises outlook of Bulgaria's sovereign BBB rating to stable.

By bne IntelliNews October 25, 2010
International rating agency Japan Credit Rating Agency (JCR) affirmed its BBB rating on the country's foreign currency long-term senior debt and its BBB+ rating on the local currency long-term senior debt but raised the outlook from negative to stable, JCR said on its website. The ratings are based on the prudent fiscal policy, the support for the currency board arrangement, and the expanded production capacity. Still, the agency notes that the ratings are constrained by the large private foreign debt, and the insufficient industrial transformation. The outlook change takes into consideration the significant reduction in the CA deficit, the moderate decline of short-term foreign debt, the success of the government to maintain the currency board, while promoting fiscal consolidation, judicial reform and fight against corruption. JCR projects that the Bulgarian economy will recover only modestly in 2010 without pointing a figure and expects GDP growth of above 2% in 2011 on domestic demand improvement. The latter may help the government to reduce the fiscal deficit below 3% of GDP next year. CPI inflation will remain low on easing output gap and a moderate wage increase. The Agency noted that the banking system has remained sound due to the stringent central bank supervision and that banks' capital might absorb any deterioration in assets' quality. It sees only marginal impact from the Greek crisis on the local economy. JCR stated that the government has enough capacity to meet contingencies after the years of fiscal surpluses, which led to accumulation of fiscal reserves and reduction in government debt. However, it warns that a reduction of the fiscal deficit in the middle run would require improvement of the pension fund deficit and administration reforms.

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