December 14 (SeeNews) - The formation of a four-party coalition government in Bulgaria reduces near-term political uncertainty that could have hindered the timely implementation of the country’s EU-funded recovery and resilience plan, Fitch Ratings said.
"The outcome appears to confirm our view that this year’s political volatility would not pose a significant risk to economic policy or to Bulgaria’s commitment to adopting the euro, while the new government’s focus on improving governance could be credit positive over the medium term," the global ratings agency said in a statement on Monday.
Bulgaria's new cabinet headed by Kiril Petkov, leader of election winner We Continue the Change, took the oath of office in parliament on Monday. A total of 134 members of the 240-seat parliament backed Petkov's nomination for prime minister and the lineup of the new cabinet which comprises ministers from We Continue the Change formation led by Petkov, the Bulgarian Socialist Party (BSP), populist formation There Is Such a People (TISP) and the anti-status quo, pro-reform Democratic Bulgaria coalition.
The advent of a four-party coalition does not eliminate political uncertainty due to the potential for disagreements between coalition members. However, Petkov has said that four-way talks in late November resulted in agreements on 18 policy areas, including the prompt adoption of a 2022 budget and commitment to adopting the euro, Fitch noted.
"Full details of the agreements have yet to emerge, but developments so far are consistent with our view that political uncertainty was unlikely to alter the broad-based commitment to prudent fiscal and macro policies and euro adoption."
The positive outlook on Bulgaria’s ‘BBB’ sovereign rating by Fitch, in place since February, reflects both the dissipation of macroeconomic risks from the pandemic and gradual progress towards eurozone membership, underpinned by prudent policy settings. Fitch affirmed the rating and maintained the positive outlook in July.
The ratinhs agency noted that Covid-19 still presents risks to growth in Bulgaria which has the lowest vaccination rate in the EU, but economic prospects are enhanced by the commitment to macro and fiscal stability and the prospects of substantial EU funding.
Investments related to the EU-funded recovery and resilience plan will be very important in supporting GDP growth of 3.9% in 2022-2023, in addition to serving as a policy anchor given programme conditionality. The formation of a new government reduces the risk that the recovery and resilience plan implementation will be delayed, Fitch said.
Implementing planned judicial reforms and anti-corruption measures could boost Bulgaria’s medium World Bank Governance Indicators ranking, which is slightly above ratings peers but is the lowest in the EU, and go some way to reducing popular disillusion with politics. "However, this is likely to take time and could cause frictions within the coalition," the ratings agency noted.