Fitch Affirms Bulgaria's Foreign Currency Rating at 'BBB-', Outlook Stable
Fitch Ratings has affirmed Bulgaria's long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB-' and 'BBB', respectively with stable outlooks.
The issue ratings on Bulgaria's senior unsecured foreign and local currency bonds have been affirmed at 'BBB-' and 'BBB', respectively, the global rating agency said in a news release on Friday.
"Bulgaria's ratings are supported by its stronger external finances relative to its 'BBB' range peers. A current account surplus is accompanied by a high level of foreign reserves, which provide stability to its existing currency board regime," Fitch said.
"However, public debt has been pushed closer to the BBB median following one-off costs to fund Bulgaria's Deposit Insurance Fund, eroding a previous rating strength. In addition, large structural weaknesses in the economy constrain potential for higher trend growth."
The rating agency noted that a weak domestic sector has been more than offset by strong growth in net exports.
With average annual growth of 2.7% for the first three quarters of 2015, Fitch has revised up its real GDP growth forecast for 2015 to 2.5%, up 1.3percentage points from the June forecast. For 2016 and 2017, Fitch forecasts real GDP to average 2.6%.
Bulgaria's strong net foreign asset position (estimated at 30.5% of GDP for 2015) is a rating strength and reflects a high level of foreign reserves supporting the currency board, Fitch said.
For 2015, Fitch has left its fiscal deficit projection unchanged at 3.0% of GDP.
"Year-to-date fiscal performance shows strong revenue growth above budget plans and expenditure growth contained. For 2016, Fitch forecasts the fiscal deficit to narrow to 2.5% of GDP, as capital spending falls, but to miss the government's target of 2.0% of GDP."
A key assumption for the affirming of Bulgaria's ratings is that the country's currency board arrangement will remain in place and that governments will continue to pursue policies consistent with it, Fitch said. The rating agency also assumes that Bulgaria's main economic partners in the EU will benefit from a gradual economic recovery.
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