Bulgaria faces structural economic challenges, Moody’s says, citing an aging population and weak infrastructure. Despite its relatively small size, the Bulgarian economy benefits from comparatively high income levels, according to the international ratings agency. Moody’s emphasized that its latest periodic review does not constitute a credit rating action nor signals an imminent change.

The agency notes that Bulgaria maintains a low but steadily growing public debt and strong capacity to service it. EU and eurozone membership, rated “Aaa” with a stable outlook, bolsters governance and institutional strength, although persistent corruption remains a major obstacle. The adoption of the euro from January 1, 2026, is seen as positive, mainly by removing currency risk for euro-denominated debt, a factor already reflected in Bulgaria’s Baa1 rating.

Political instability continues to pose risks. Moody’s pointed out that the December 2025 resignation of the Bulgarian government, following widespread protests in Sofia and other cities, underscores that the underlying causes of domestic unrest since 2020 remain unresolved. This instability could threaten the timely implementation of reforms and investment goals under Bulgaria’s Recovery and Resilience Plan (RRP) by the August 2026 deadline. The agency expects that about two-thirds of the remaining RRP funds from the fourth and fifth tranches—roughly €2.5 billion, or just over 2 percent of Bulgaria’s 2026 GDP—will be disbursed.

Moody’s projects the government debt-to-GDP ratio to rise above 30 percent in 2026 and gradually reach 37 percent by 2030, up from around 24 percent in 2024. This growth will be driven by a persistent budget deficit of roughly 3 percent of GDP and capital injections into state-owned enterprises. Despite the increase, Bulgaria’s debt burden is expected to remain below the average for Baa1-rated countries, and debt-servicing capacity should continue to exceed typical benchmarks for the rating.

An upgrade in Bulgaria’s rating could follow if institutional effectiveness improves, enabling smoother implementation of structural reforms and fiscal measures, and if fiscal deterioration proves less severe than projected. Conversely, a downgrade could result from a significant, sustained decline in key fiscal indicators or if economic growth falls substantially below medium- and long-term potential.