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Nov 27, 2023 11:13 EEST
November 27 (SeeNews) - Standard & Poor's (S&P) said it affirmed its long- and short-term foreign and local currency sovereign credit ratings on Bulgaria at 'BBB/A-2', revising the outlook to positive from stable in view of at least "a one-in-three likelihood" that Bulgaria will join the eurozone in the next 24 months.
While meeting all convergence criteria, including price stability in light of high inflation, may pose a challenge for Bulgaria delaying eurozone entry beyond the start of 2025, the ratings agency anticipates potential accession by January 1, 2026, it said in a press release on Friday.
Euro accession will lead to a positive ratings action, "potentially by several notches", in an upside scenario in the next two years, S&P said.
Bulgaria has been running a currency board for over 25 years and its currency, the lev, has been included in ERM II, the stepping stone to the euro, since 2020.
In a downside scenario, the outlook would be revised to stable if Bulgaria's eurozone prospects became less likely. The risks for that involve inflation in the country remaining higher for longer, or another lengthy period of political gridlock with the absence of a functioning government, or due to external political considerations within the Eurogroup.
"Notwithstanding an aging workforce, we think Bulgaria's economy has strong growth prospects over the next few years, with real growth at about 3% on average from 2024-2026, backed primarily by domestic demand," S&P said.
The country's robust real economy growth outlook, averaging 3% from 2024 onwards, is expected to bolster government finances, keeping deficits below 3% until 2026, according to the agency's projections.
Consumption is expected to remain robust, thanks to a resilient labour market driving positive real wage growth. Additionally, substantial EU funds, estimated at over 30% of the country's planned 2023 GDP, are set to support investment activities for several years even if their intake and deployment are not full due to key funding programmes, such as the EU Multiannual Financial Framework 2014-2020 and the Recovery and Resilience Facility (RRF) under the Next Generation EU programme, nearing operational deadlines.
"Bulgaria has one of the strongest fiscal track records of Central and Eastern European countries, and we think current fiscal plans will result in deficits below 3% of GDP through 2026, keeping debt, net of liquid government assets, at below 20% of GDP," S&P also said.
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