S&P Global Ratings has re-affirmed its long- and short-term foreign and local currency sovereign credit ratings on Bulgaria at \u2018BBB\/A-2\u2019, and kept a stable outlook, saying that it expected Bulgaria\u2019s economy to rebound quickly after the Covid-19 pandemic.<\/p>\n
The credit ratings agency said that it expected Bulgaria\u2019s 2020 gross domestic product to shrink by 4.5 per cent, compared to a decline of 6.5 per cent\u00a0projected\u00a0in May, as domestic demand was more resilient expected and mitigated a sharp drop in external demand.<\/p>\n
Bulgaria was in a \u201crelatively strong external and fiscal position\u201d at the beginning of the health crisis, which should enable a robust recovery over the coming years.<\/p>\n
\u201cFiscal space is available, since prudent financial policies over recent years have kept net general government debt below 15 per cent of GDP so far. We think external vulnerabilities are manageable after years of external net deleveraging thanks to recurring current and capital account surpluses, also supported by EU fund inflows,\u201d S&P Global said.<\/p>\n
The agency said that Bulgaria\u2019s economy would benefit from a rise in external demand as it expected the country\u2019s most important trade partners to recover in 2021. This was seen resulting in a four per cent economic growth rebound for Bulgaria next year.<\/p>\n
S&P Global attributed Bulgaria\u2019s \u201csomewhat milder economic contraction\u201d in 2020, compared to other countries in the region, to the Cabinet\u2019s swift policy response of imposing tight restrictions while Covid-19 infections were low, coupled with fiscal support measures.<\/p>\n
The credit ratings agency also notes Bulgaria recent political volatility and the anti-government protests earlier this year. \u201cIn the absence of a major political shift, we expect the new parliament\u2019s composition could mirror the current fragmented political landscape, which will make the formation of a viable government coalition challenging,\u201d S&P Global said.<\/p>\n
\u201cIn all likelihood, this could result in a protracted coalition forming or even the necessity for a rerun of the elections. In any case, we expect the political decision-making process to become more complicated.\u201d<\/p>\n
Going forward, S&P Global said it could raise Bulgaria\u2019s credit ratings if its economic recovery coincides with quicker fiscal consolidation or a stronger external performance than currently projected, or if Bulgaria makes progress in joining the euro zone.<\/p>\n
On the downside, ratings could be cut if the economic contraction was deeper or the subsequent recovery was delayed. \u201cThis would likely result in protracted fiscal consolidation and continuously rising net public debt over the next few years. Although unlikely over the medium term, we could also take a negative rating action if we observed increased imbalances in Bulgaria\u2019s financial sector,\u201d the credit ratings agency said.<\/p>\n