Moody's has reaffirmed Bulgaria's long-term and short-term credit ratings at Baa1 with a stable outlook, signaling confidence in the country's economic stability. The decision reflects expectations that Bulgaria's debt and creditworthiness will remain stronger than those of similar-rated countries. The agency predicts steady economic growth for Bulgaria through 2025 and beyond, which will contribute to narrowing the income gap with other nations in the same rating group. Additionally, Moody’s notes that the upcoming adoption of the euro will further enhance Bulgaria’s credit profile.

Despite these positive projections, the agency raised concerns about Bulgaria's institutional challenges, citing the slow progress in key reforms and difficulties in accessing funds under the Recovery and Resilience Plan (RRP). Moody’s warned that these institutional weaknesses could hinder the implementation of policies outside of the RRP. The country's fiscal position is also identified as a risk, with potential implications for its credit outlook.

Moody’s forecasts a moderate increase in Bulgaria’s public debt in the coming years, with the ratio expected to rise to 27% of GDP by the end of 2025, reaching around 29% in 2026. This follows an expected 24.8% by the close of 2024. Despite this, the country's debt remains considerably lower than that of other Baa1-rated nations. In the same period, inflation is expected to stabilize at an average rate of 2.6%, alongside a slowdown in nominal GDP growth.

The rating agency anticipates a budget deficit close to 3% of GDP for both 2025 and 2026. Economic growth is projected at 2.5% in 2025 and 2.7% in 2026, primarily driven by private consumption, supported by rising real wages amid significant labor shortages and modest inflation. This growth is also expected to benefit from increased absorption of European Union funds from the 2021-2027 period.

Bulgaria’s full membership in the Schengen Area from the beginning of 2025 is expected to boost sectors like tourism and transport services, while improving conditions for exporters. The potential adoption of the euro in 2026 is also seen as a positive factor for Bulgaria's continued economic integration with the eurozone and long-term growth.

Source: Moody's