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Finance Ministry Hopeful Moody's Will Up Bulgaria's Rating
Date: 04/05/2011
Finance Ministry Hopeful Moody's Will Up Bulgaria's Rating

Moody's Investors Service is currently reviewing Bulgaria's credit rating and is likely to boost it, the credit agency says in a regular report cited by the Bulgarian Finance Ministry.

Bulgaria currently has a Moody's credit rating of Baa3, the same as Romania, Hungary, Croatia, and Latvia; on April 5, Moody's placed Bulgaria's Baa3 sovereign rating "on review for possible upgrade".

The Bulgarian Finance Ministry stresses that this grade "reflects Bulgaria's stable state finances and the moderate economic power of the country"; it further points out that Moody's is reviewing it and likely to boost it in July as a recognition of the fast progress of the fiscal consolidation achieved by the government after 2009, and of the strengthening of the Bulgarian institutions in the recent years.

Moody's expects that Bulgaria's budget deficit will go below the EU Stability and Growth Pact threshold of 3% of the GDP in 2011 "thanks to the prudent fiscal governance and increasingly stronger recovery", and will go down to zero in the coming years.

The credit rating agency has recognized that Bulgaria has the second lowest public debt in the EU after Estonia, and has emphasized that achieving a low deficit will be key for Bulgaria's long-term fiscal stability given the pressure on state finances to be caused by the aging population and the currency board under which the Bulgarian lev is pegged to the euro.

The Finance Ministry further cites Moody's as saying that the Bulgarian macroeconomic framework will stay stable thanks to the government's initiative to adopt a Financial Stability Pact, i.e. amendments to the Constitution to guarantee legally that the budget deficit cannot go beyond 2% of the GDP.

Moody's has assessed Bulgaria's institutional capacity as "average" but it does point out the "controversial" international assessments of Bulgaria's rule of law and anti-corruption efforts.

The international credit rating agency is not positive that Bulgaria might see a reversal of the negative trends of shrinking foreign direct investment and other capital inflows.

"Competitive wages and low tax rates should help maintain private sector investment, while public investment will also be supported by EU structural funds," Moody's said. It has evaluated a government plan to boost Bulgarians' income to 60% of the Euro Area average by 2020, from the current under 40%, as "ambitious but not altogether unrealistic."

Moody's does not expect that Bulgaria's currency peg will be changed especially after it passed a very hard test of stability during the global economic crisis.

Bulgaria's government projects a budget deficit of 2.5% in 2011, and plans to bring it down to 0.5% of the GDP by 2014. Latest data showed that in 2010, Bulgaria's deficit was 3.2%, better than the expectations. The government expects a 3.6% economic growth in 2011, after a 0.2% growth in 2010, and a contraction of 5.1% in 2009.

Topic: Financial

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