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Prospects of snap vote in Bulgaria increase fiscal uncertainty - Fitch

Prospects of snap vote in Bulgaria increase fiscal uncertainty - Fitch Fitch (Author: fitchratings.com) License: all rights reserved.

SOFIA (Bulgaria), November 23 (SeeNews) - The resignation of the Bulgarian government and the prospect of early elections increase fiscal uncertainty heading into 2017, global rating agency Fitch said on Wednesday.

"Parliamentary support for the draft 2017 budget suggests that the scope for dramatic fiscal loosening is limited, but recent experience shows that over-expenditure is a risk to fiscal projections," the rating agency said in a statement.

On November 16, the Bulgarian parliament approved the resignation of prime minister Boyko Borissov of the centre-right GERB party. Borissov resigned after Rumen Radev, the candidate backed by the opposition Bulgarian Socialist Party (BSP), won country's presidential elections in a run-off vote.

Improvements in tax collection, lower-than-projected capital expenditures, and robust growth have resulted in a strong budgetary performance in 2016.

"We think discretionary measures in the draft 2017 Budget are consistent with another deficit below 1% of GDP under ESA 2010 methodology. The budget forecasts real GDP growth of 2.5%, close to our 2.4% forecast," Fitch said.

The draft budget approved by parliament on first reading last week envisages a deficit equivalent to 1.4% of the projected GDP. In nominal terms, GDP is seen at 92.4 billion levs ($50.2 billion/47.3 billion euro).

Political uncertainty may reflect on private investments, which according to the rating agency have contributed to a relatively strong performance in the first half of the year. Public investment may also slow due to lower absorption of EU funds in the absence of a permanent government.

"Over the longer term, the lack of clarity over the composition of a new government increases uncertainty over attempts to address structural challenges and improve potential growth and GDP per capita," Fitch noted.

A pattern of unstable governments is a weakness for Bulgaria's "BBB-/Stable" sovereign rating, which Fitch affirmed in June, the rating agency added.

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