The rating agency Fitch Ratings has reaffirmed Bulgaria's long-term credit rating in foreign and local currency - "BBB" with a positive outlook, the Ministry of Finance (MoF) announced.
Fitch's assessment is motivated by the country's strong external and fiscal position compared to countries with the same rating, a reliable political framework from EU membership and the long-term functioning of the currency board regime in our country.
At the same time, however, the international rating agency warns that low labor productivity and the unfavorable demographic situation have a deterrent effect on potential growth in the long term. Fitch also reports that the unstable political environment in recent years has affected the implementation of reforms in our country.
The Ministry of Finance notes that the positive outlook reflects the prospects for adopting the euro, which would lead to further improvement in external indicators. The Ministry recalls that in February 2025, Bulgaria submitted a request to the European Commission (EC) and the European Central Bank (ECB) for extraordinary convergence reports after fulfilling the Maastricht criteria, including price stability. The reports are expected to be released in early June. If the assessment in them is positive, Bulgaria will be able to adopt the euro from January 2026. Fitch generally accepts the introduction of the euro in our country as a positive factor in terms of the rating.
Fitch revised its GDP growth forecast for 2025, with the expected value increasing to 3.1% from 2.5% in October 2024. due to stronger growth in the previous year and the improved domestic political situation. According to the agency, strong nominal wage growth will continue to support consumption. Fitch remains cautious regarding the capacity and pace of reform implementation, but still expects EU funds for our country to increase and support investment activity in our country.
The rating agency expects inflation according to the Harmonized Index of Consumer Prices (HICP) to average 3.9% in 2025, compared to 2.6% in 2024. Fitch does not expect inflation to hinder Bulgaria's entry into the Eurozone and predicts it to fall to 3% in 2026.
According to the agency, the deficit in the "General Government" sector will increase to 2.8% of GDP in 2024 from 2% in 2023. based on higher wage and social security costs. Fitch forecasts a budget deficit of 2.7% in 2025 due to additional public sector wage increases, military equipment purchases (0.5% of GDP) and planned revenue-raising measures. Fitch expects the deficit to decline to 2.4% in 2026 due to possible higher defense spending and lower expected EU funds.
Confirmation that Bulgaria has fulfilled the convergence criteria and greater certainty regarding the likely timing of euro adoption and improved growth potential could have a positive impact on the rating.
Negative impacts could include a lack of progress in joining the Eurozone due to renewed political instability or failure to meet the convergence criteria and weaker economic growth prospects.