Standard & Poor's ratings agency has affirmed its long- and short-term foreign and local currency sovereign credit ratings on Bulgaria at 'BBB/A-2'.

The outlook on Bulgaria's credit ratings has been downgraded from 'stable' to 'negative', citing weak economic growth prospects and a worrying political situation.

In a statement, S&P said the 'negative' outlook indicated that there was at least a one-in-three possibility of lowering the ratings within the next two years, if the political environment deteriorates, weighing on already-weak growth prospects.

According to the rating agency, Bulgaria's growth prospects are being challenged by anemic domestic demand, resulting from low credit growth, constrained investment growth and still-high unemployment, as well as by the complex political climate, which could slow reforms.

S&P agency stated that the GDP actual growth for the period 2010-2012 (approximately 1%) was affecting the outlook downgrading thus preventing the country's development prospects.

Bulgarian Ministry of Finance agreed with S&P's assessment of the deteriorating business environment and the suppressed economic growth for the period 2010-2012, yet dismissed the negative growth prospects pointing out the GDP growth of 1.5% in Q3.

The Ministry of Finance's position is supported by short-term indicators which also show growth. The retail sales growth reached 6.9% in October. The industrial production index is also positive for the second consecutive month, owing to increased domestic trade.

S&P's report notes that the improvement of Bulgarian political climate would strengthen the institutions functions and would increase the economic growth prospects, which, in turn, would have a favorable impact on the country's credit rating.

The credit rating agency stated that the budget deficit is expected to reach 2% of GDP in 2013, as a result of government commitments to increase social benefits and pensions, and to settle obligations to the private sector.

The agency also noted that the level of net government debt was expected to remain low amounting to 15% of GDP in 2016. S&P confirmed the government's ability to meet deficit targets for the period 2014-2016.

The evaluation of the ability to maintain the stability of public finances is an essential for the credit rating and it has been validated.

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