Moody's Investors Service has affirmed Friday the Baa3 local and foreign currency ratings of the Bulgarian government, saying that the outlook remains stable.

"Bulgaria is likely to experience a difficult recession in 2009 as the economy suffers from shrinking exports and slowing inflows of foreign capital... Nevertheless, many years of prudent fiscal policy and low debt mean that the government is well positioned to cope with the situation", Kenneth Orchard, Vice President-Senior Analyst in Moody's Sovereign Risk Group, commented.

Moody's recognises that the Bulgarian government used the recent period of economic growth to strengthen its financial position, and budget surpluses averaged 2,7% of GDP between 2004 and 2008, debt on GDP base declined to 14%, and a significant fiscal reserve was accumulated.

Domestic credit, external debt and the current account deficit all increased at rapid rates from 2005 to 2008, Moody's announced. The banking sector presently appears to be in reasonably good shape, with relatively high capital adequacy and liquidity ratios by international standards, but these buffers could be quickly eroded if the downturn intensifies, the report shows.

"The decline in foreign financing will probably cause a sharp downward adjustment in the current account deficit, implying declining output and weak government revenue growth. However, Moody's believes that low wages and a flexible labour market will ease the adjustment and ultimately allow Bulgaria to rebound when the regional economy improves", Orchard cautions .

Moody's believes that a greater risk comes from the large amount of private sector external debt that must be re-financed in 2009.

The last rating action on Bulgaria was implemented on 25 September 2008, when Moody's changed the outlook to stable from position on the local and foreign currency debt obligations of the government.