Fitch Ratings has re-affirmed Bulgaria’s sovereign long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB’ and raised its rating outlook to positive.
The credit ratings agency said its decision reflected “the dissipation of macroeconomic risks stemming from the Covid-19 pandemic, underpinned by a more resilient economy and a sound policy framework,” as well as the country’s continued progress towards adopting the euro.
The pandemic and political uncertainty presented short-term downside risks to the outlook, but were offset by “prospects of substantial funding for investment from the EU and broad commitment to macro and fiscal stability,” the agency said in its rating decision.
Fitch cut its estimate of Bulgaria’s economic downturn in 2020 to four per cent, compared to an earlier forecast of 5.7 per cent, attributing it to more resilient private consumption, while manufacturing was less affected due to lighter restrictions than in other EU countries.
Bulgaria’s statistics body is due to announce preliminary gross domestic product data on March 9.
Fitch also noted that Bulgaria’s public finance metrics have remained strong compared to other countries rated at BBB, despite the economic impact of the pandemic. “Revenue outperformed the revised budget targets, thanks in part to improvements in tax collection and a less pronounced economic contraction than previously expected,” the agency said.
Parliamentary elections, scheduled for April 4, were likely to result in a “fragmented” National Assembly, which created “high uncertainty about the shape of the next government,” Fitch said.
“Although government formation could take time and a multi-party coalition could prove highly unstable, at present Fitch does not see major risks to economic policy or to Bulgaria’s commitment to the EU,” the ratings decision said.
Political “dynamics” could also delay “meeting structural commitments” required by Bulgaria’s efforts to join the euro zone, which it aims to do by January 2024, Fitch said, noting that “at present, there is a commitment across the political spectrum on euro adoption.”
Progress towards the euro zone accession and “an improvement in growth potential”, through structural reforms or effective implementation of EU funds, were the main factors that could lead to positive rating action, Fitch said.
On the downside, negative action could be prompted by “adverse policy developments, for example following period of political paralysis, that reduce confidence in economic recovery and the policy framework” or a prolonged rise in public debt.
Source: https://sofiaglobe.com/
