Fitch affirmed on December 4 Bulgaria's sovereign credit rating at BBB-, the lowest rung on its investment grade ladder, with stable outlook. The agency more than doubled its 2015 GDP growth forecast for the country to 2.5% from 1.2% projected in June, citing better than expected outcome in the first nine months of the year, but predicted that the government is highly likely to miss its 2% budget deficit target for next year due to a too optimistic revenue forecast.

Bulgaria's economy expanded by an average of 2.7% in first three quarters of 2015 and growth is anticipated to remain largely the same in the near term, averaging 2.6% in 2016 and 2017, the agency said in a statement. It projected a budget gap of 2.5% of GDP next year.

A major strength for Bulgaria's investment grade rating is related to its external balnce, with a current account surplus seen at 2% of GDP this year, 1.1% next year, and 1.5% in 2017, thanks to strong exports, Fitch noted. In addition, a high level of foreign reserves provides stability to the country's currency board arrangement that has been in place since 1997.

On the other hand, a surge in public debt-to-GDP ratio, triggered by the colapse of the country's fourth largest bank last summer, eroded a previous rating strength, Fitch said. Bulgaria's government debt was €11.72bn at end-September, up 22.4% y/y, and the debt/GDP ratio stood at 26.7%, up from 20.2% at end-June 2014, when the banking crisis broke out.

“Bulgaria's ratings are constrained by structural bottlenecks, which continue to hamper stronger growth, and limit Bulgaria's convergence with western European standards of living”, Fitch said.

Among the main risk factors for the country's credibility, Fitch mentioned a potential re-emergence of instability in the banking sector, fiscal slippage, and subdued economic growth.

Bulgaria is rated Baa2 by Moody's, two notches above junk, while S&P has it at BB+. S&P lowered Bulgaria to junk in December 2014 after the banking crisis pushed up government debt.