Fitch raises Bulgaria's credit rating

The global credit rating agency Fitch Ratings raised from stable to positive the outlook over Bulgaria's Long-Term Foreign-Currency and Local-Currency credit rating. The country's BBB rating was affirmed. This was announced by the Ministry of Finance's press centre.

The positive outlook reflects the reduction in macroeconomic risks arising from the Covid-19 pandemic. It is supported by a more sustainable economy and a sound policy framework, as well as by an ongoing gradual process towards adoption of the euro.

According to Fitch Ratings, the short-term negative risks arising from the coronavirus pandemic and the uncertain outcome of the forthcoming elections are largely compensated by the prospects for significant EU investment financing and the commitment to macroeconomic and fiscal stability, supported by the long-term functioning of the currency board arrangement and Bulgaria's participation in ERM II.

Bulgaria will be one of the main beneficiaries of EU bank transfers in the coming years, including €16.6bn (27% of GDP for 2020) over the next multiannual financial framework (2021-2027) and €7.5bn (12% of GDP) in EU grants under the NGEU mechanism. Despite the challenge of absorbing such a large amount of funds, Fitch Ratings believes that this will increase the economic growth from the estimated 3% for 2021 to 4-5% in the period 2022-2025.

Bulgaria's rating is supported by its strong external and fiscal balances and the sound political framework of its EU membership as well as by the long-standing functioning of the currency board arrangement. The assessment is limited by slightly lower income levels compared to the median of the countries with BBB rating as well as by the unfavourable demographic data, which can limit the growth and affect public finances in the long run. The indicators for governance are slightly above those of the countries which were selected for comparison.

Despite the negative effects of the coronavirus pandemic, and due to the long-term prudent fiscal policy, public finance indicators remain better compared to other countries with the same rating and compared to EU Member States. Fitch Ratings estimates the budget deficit (on an accrual basis) at 4% of GDP for 2020 (compared to the median of 6.9% for countries with a similar rating), mainly influenced by Covid-19-related expenditure measures of around 3% of GDP. The implementation of revenues exceeded the revised budget targets, partly due to improvements in the tax collection and a weaker-than-expected economic contraction, the Finance Ministry added.

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