Moody's affirmed on June 5 Bulgaria's Baa2 government bond ratings with a stable outlook, citing still low debt-to-GDP ratio and improving economic growth prospects, supported by the government's reform efforts. This is certainly good news for the Balkan country, as Moody's has the highest assessment of its credibility. Fitch rates Bulgaria at BBB-, the lowest investment grade, while S&P cut in December Bulgaria to junk (BB+), citing a risk of further state support to the financial sector and a deteriorating fiscal position.

Moody's acknowledged that Bulgaria's government debt increased rapidly in 2014 due to the contingent liabilities arising from the collapse of Corporate Commercial Bank (Corpbank), on top of a rise in the fiscal deficit and the planned restock of cash in the Fiscal Reserve Account (FRA). "Yet, at 27.6%, the government debt-to-GDP ratio compares favorably with European Union (EU) and Baa2 medians (72% and 41.2% respectively)," the agency said in a statement, adding that the debt position provides significant financial flexibility and shock absorption capacity to the government's balance sheet.

Moody's praised the government's reform efforts, including the start of a systematic overhaul and reform of the financial supervision and regulation framework and planned labour market and pension system reforms, but warned that implementation risks still linger on some reforms, particularly those carrying a high social impact, like the reform of the pension system and the highly regulated energy sector.

"The positive reform momentum could come under pressure in the event of a new wave of protests and growing voters dissatisfaction, as well as political stalemate in the ruling coalition, which would lead to a new government crisis. If that were to happen, it would heighten the risk of the country becoming locked into a persistent low-growth environment," Moody's said.

The agency expects real economic growth in Bulgaria of 1.3% in 2015 and 1.8% in 2016, following a 1.7% expansion in 2014.