Moody's confirmed Bulgaria's long-term rating in foreign and local currency Baa1 with a stable outlook, reports the Ministry of Finance.

According to Moody's, Bulgaria can still meet its goal of adopting the euro from 2024, but the main scenario for the country assumes that this process will probably be delayed until at least 2025.

The confirmation of Bulgaria's Baa1 rating balances the following key factors:

• Moody's expectations that an energy crisis in Europe will not significantly weaken the economic and fiscal position of the country.
• The support for Bulgaria's credit profile arising from the prospect of adopting the euro, despite the risk of delaying adoption beyond 2024.
• Risks to the government's effectiveness and progress on key priorities stemming from the prolonged domestic political stalemate in the country.

The stable outlook reflects Moody's expectations for relatively little fluctuation in the country's main economic and fiscal indicators over the next 12 to 18 months. It also reflects the balance of risks between the potential negative effects on the credit profile arising from the political situation in the country and the potential positive effects of the eventual adoption of the euro, commented the Ministry of Finance.

Analysts from Moody's estimate that despite rising production and consumer prices, available data for Bulgaria as of November 2022 show that industrial production and private consumption in the country are relatively resistant to these shocks.

Moody's expects real GDP growth to reach 2.7% in 2022, before slowing to 1.4% in 2023, and says these estimates are among the most stable growth rates compared to others European countries this year.

The government's ability to provide support to businesses without weakening its fiscal position was also noted as an important factor that explains why Moody's does not expect the energy crisis to have significant and lasting economic consequences on the Bulgarian economy.

The rating agency believes that inflation will decrease to 6.0% at the end of 2023, compared to 14.3% at the end of 2022.

In line with the need to meet the Maastricht criteria, the agency expects the budget deficit to remain stable at around 3% of GDP in 2023 and 2024, and government debt to increase slightly to 23.8% and 24.7% of GDP, at the end of 2023 and 2024, respectively, keeping the country's overall fiscal position broadly unchanged.

The absence of a stable governing coalition, for most of the period from April 2021 to now, has increased the risks associated with the implementation of key policies for the country and could also complicate the ability of the government to react in the presence of unforeseen events. Analysts note that the caretaker government has been effective in strengthening alternative gas supply routes through Greece and Turkey, as well as alternative natural gas supplies, most notably from Azerbaijan.

The rating agency would raise the credit rating in the presence of an improvement in the long-term growth prospects resulting from improvements in the infrastructure and institutional environment, as well as the country's accession to the Eurozone.

Moody's noted that they would lower the rating if the country's strong budget position, prospects for long-term economic growth, as well as failure to complete the process of joining the Eurozone, were to deteriorate permanently.

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