Standard & Poor's: Bulgaria's Credit Rating Upgraded

International credit rating agency Standard & Poor's said on Wednesday it affirmed Bulgaria's sovereign debt ratings and upgraded the outlook due to the government's prudent fiscal policy.

S&P said in a statement that it had affirmed Bulgaria's long-term sovereign credit rating to "BBB." The short-term rating was also affirmed at "A-3."

At the same time, the rating agency revised upwards the outlook for Bulgaria's credit to to stable from negative as a result of the government's "strong record of prudent fiscal policy and low gross debt, solid growth prospects over the medium term and EU membership."

Nevertheless, Bulgaria continued to face economic risks due to the uncertain outlook for external demand and the sharp tightening of the external commercial credit availability, it cautioned.

Even in the current economic environment, Bulgaria still stood a fair chance of being able to curb its ballooning current account deficit to around 10 percent of gross domestic product in 2009 from 25.4 percent of output in 2008, the agency said.

"We expect the deficit to be fully funded by foreign direct investment flows," it said.
S&P's growth forecast saw the Bulgarian economy shrinking by 6.0 percent in 2009 and by a further 2.0 percent in 2010 before returning to growth in 2011. That is in line with the government's own forecasts and that of the International Monetary Fund.

S&P analyst Marko Mrsnik praised the the new right-wing government's commitment to fiscal discipline and deficit-reducing measures.

S&P sees the budget deficit amounting to 1.0 percent of GDP, the lowest in the EU, and estimates the government will be able to keep a tight budget in 2010 as well.
Given the severe recession, however, S&P cautioned that the financial sector "will continue to be under pressure."

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