Fitch Raised Bulgaria's Rating Outlook

The international rating agency Fitch Ratings affirmed the country’s ‘BBB+’ rating and upgraded its outlook from stable to positive. The positive outlook reflects the reduced political uncertainty following the formation of a government backed by a single-party parliamentary majority. The rating agency views this as an opportunity to make progress on structural reforms to support potential growth, increase prosperity, and improve public sector management, building on Bulgaria’s accession to the eurozone.

The analysis notes that the current rating is driven by the benefits of membership in the eurozone and the EU, as well as by stable public finance and external balance indicators. However, these strengths are partially offset by risks of the economy overheating, stemming in part from procyclical fiscal policy, high inflation, and current account deficits, as well as other factors.

Fitch Ratings emphasizes that the country’s economic growth has remained around 3% since 2024, despite various external shocks and weak growth in the EU economy, with the rate remaining significantly above the eurozone’s growth of about 1%. The rating agency forecasts that GDP growth will gradually slow to 2.4% by 2028, with an expected rebalancing toward slower growth in domestic demand and improved export performance.

Attention is drawn to signs of macroeconomic imbalances, stemming primarily from strong nominal wage growth over the past three years. This has fueled a sharp increase in household consumption, contributing to a significant widening of the current account deficit, which is projected to rise to 7.4% of GDP in 2026 - well above the levels typical for countries with a similar credit rating. According to Fitch Ratings’ forecast, average annual inflation will reach 4.9% this year and will remain above the average for countries with a ‘BBB+’ rating during the 2027–2028 period.

Factors that could lead to a rating upgrade include the reduction of macroeconomic imbalances and the successful implementation of structural reforms. Conversely, a worsening of these imbalances, a sharp decline in GDP growth - for example, as a result of reduced competitiveness - and a significant increase in the government debt-to-GDP ratio are factors that would result in a lower credit rating.