On April 26, international rating agency Fitch Ratings affirmed Bulgaria's long-term foreign currency issuer default rating (IDR) of BBB and expressed positive outlook, noting that Bulgaria will join the euro zone early next year. He said he no longer expected it.
“Bulgaria's rating is supported by a strong external and public balance sheet compared to 'BBB' peers, and a reliable policy framework supported by EU membership and a long-standing Monetary Commission. “This situation is balanced by low labor productivity and unfavorable demographic trends that will weigh on potential growth and government finances in the long term,” Fitch said in a statement.
This positive outlook reflects the outlook for euro adoption, despite expected delays.
“Despite the euro adoption process being postponed beyond January 2025 and renewed political uncertainty, Fitch believes there is broad political commitment to euro adoption at local and EU level. Fitch said.
Meanwhile, Bulgaria's HICP inflation rate has slowed significantly, but remains higher than that of the three best-performing EU member states. Fitch expects Bulgaria not to comply with price stability standards until mid-2024, but not as early as the last quarter of this year.
“Bulgaria is on track to meet all other euro adoption nominal criteria (fiscal, interest rate, exchange rate). Nevertheless, the lack of a stable government and potentially protracted coalition negotiations “This could delay euro area membership beyond 2025,” Fitch said.
The snap election on June 9th is expected to further divide the parliament, which is dominated by pro-European parties.
Bulgaria's GDP is expected to grow by 2.4% in 2024 and 3.1% in 2025, accelerating from last year's 1.8% growth.
Fitch said: “Weak external demand, renewed political uncertainty and slowing EU capital absorption will dampen economic activity in the first half of 2024, while positive real wage growth and solid credit growth will support consumer spending. I guess,” he pointed out.
HICP inflation is expected to be 3.3% in 2024 and 2.9% in 2025, down from 8.6% in 2023.
