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Political uncertainty in Bulgaria unlikely to affect key economic policies - Fitch

Political uncertainty in Bulgaria unlikely to affect key economic policies - Fitch Fitch Ratings Romania

SOFIA (Bulgaria), May 5 (SeeNews) - The failure of Bulgaria's political forces to form a government after the April 4 election creates a possibility for prolonged political uncertainty which, however, is unlikely to result in significant changes to key economic policies, Fitch Ratings said.

"Commitment to prudent fiscal and macro policies, and euro accession is broad-based and long-standing, and none of the anti-establishment parties that made gains are seeking to change relations with the EU," the global ratings agency said in a statement on Sunday.

According to Fitch, the more fragmented Bulgarian parliament increases the challenge of putting together a cabinet, with the first political force, centre-right GERB failing to build a coalition last month even after its leader Boyko Borissov said he would not remain as prime minister.

On Wednesday, Bulgaria's president Rumen Radev said that he would dissolve parliament next week and call snap elections, most likely to be held on July 11, after a third political party, the Socialists, returned its mandate to form the next government. Populist political formation There Is Such a People, which came second in the election, last month also declined to try to assemble a cabinet.

Fitch noted that opinion polls suggest that the snap elections in the country would not greatly improve prospects for the formation of a government. "A multi-party coalition could prove unstable, as they have in the past," the ratings agency added.

Six political parties entered parliament as a result of the April 4 election, with each of them having neither enough seats to govern on its own, nor enough partners to try to forge a coalition cabinet.

In February, Fitch Ratings revised the outlook on Bulgaria's Long-Term Foreign-Currency Issuer Default Rating (IDR) to positive from stable and affirmed the IDR at 'BBB'. The change in Bulgaria's rating outlook reflects the improved GDP estimate for 2020 and the expected substantial funding for investment from the EU, which dissipates short-term downside risks tied to the coronavirus pandemic, the ratings agency said at the time.

In its current statement, Fitch said that it still sees little risk of abrupt changes to the macro-economic policy settings that underpinned the outlook revision in February.

"When new elections are called, an interim government will take power, with limited executive prerogatives and no ability to pass legislation in parliament. Protracted political stasis could delay reforms, including those linked the Next Generation EU (NGEU) Covid-19 recovery fund, of which Bulgaria is set to be a major beneficiary," Fitch said.

Fitch added that it believes EU funds could accelerate Bulgaria's economic growth from a projected 3.4% in 2021 to 4%-5% in 2022-2025.

"In the absence of clarity on Bulgaria’s capacity to absorb and deploy NGEU funds, which may face institutional, administrative and political constraints, we have not yet made an assessment about whether they could improve longer-term growth potential by lifting investment and productivity. Bulgaria’s low growth potential is a sovereign rating weakness," Fitch concluded.