January 25 (SeeNews) - Fitch Ratings said on Wednesday that high inflation is the key obstacle to Bulgaria's accession to the eurozone, which seems likely to be postponed beyond 2024.
"Political instability has not affected the process, reflecting broad-based political commitment and institutional support for euro adoption, and we think Bulgaria should meet the legal requirements of accession. Instead, meeting the price-stability criterion (which was not achieved in the 2022 assessment) will again be the key obstacle," Fitch said in an analysis on its website.
The 12-month average harmonised consumer price inflation, at 13.0% in December, has been well above the rate of the three best-performing EU member states throughout 2022 and is expected to remain so, potentially into 2024. Unlike Croatia, which joined the eurozone on January 1, Bulgaria is too far from the target to benefit from the removal of outliers, it added.
The potential for further delays will depend on the path of inflation in Bulgaria and elsewhere in the EU, which is uncertain, Fitch also said.
Bulgaria joined the exchange rate mechanism (ERM II), a training ground of sorts for euro adoption, and the EU's banking union, in July 2020.
The implementation of ERM II post-entry commitments is ongoing and Bulgaria is generally expected to request the assessment of its progress against the convergence criteria in the first quarter, with likely publication of the convergence report in the second quarter. A positive assessment on convergence criteria is necessary for euro adoption in January 2024.
Bulgaria's parliament must pass three key bills related to the country's ERM II commitments before it is dissolved next week, state news agency BTA quoted interim finance minister Rossitza Velkova as saying on Tuesday.
In April, Bulgaria will hold early general elections, its fifth in two years, after none of political formations in the fragmented parliament managed to secure sufficient support for a government.
Political instability in Bulgaria threatens to delay reforms linked to the National Recovery Plan, Fitch also said, adding that twenty-two legislative changes had to be implemented by the end of 2022, but this process was disrupted by the failed government-formation process.
Bulgaria already received the first 1.37 billion euro ($1.5 billion) tranche payment under the plan. However, reaching milestones required for the disbursement of subsequent tranches may be tougher, it commented.
($ = 0.9178 euro)