The Standard & Poor's Global Ratings agency has revised its outlook on Bulgaria from stable to positive, the Finance Ministry reported Friday.
At the same time, the agency has affirmed its 'BBB-/A-3' long- and short-term foreign and local currency sovereign credit ratings on Bulgaria.
According to S&P Global Ratings, the outlook revision signifies that the authorities have successfully improved domestic financial conditions and have strengthened their fiscal and external buffers. The Agency's analysts expect strong growth to continue this year, on the back of expanding domestic demand, exports, and supportive credit conditions. Net general government debt is forecast to decline in absolute terms during 2018, for the fourth consecutive year. External leverage is low and the current account remains in surplus, the press release said.
S&P Global Ratings believes that policy continuity will be ensured as long as the ruling coalition remains stable.
The main factors that could raise the ratings over the next 12-24 months include further reductions in the level of nonperforming loans (NPLs) in the Bulgarian banking sector, combined with additional progress on normalizing the credit channel, which should benefit economic growth. Bulgaria's ratings could also be raised if the government's fiscal performance strengthens beyond the Agency's current projections and if the Bulgarian lev were accepted to the European Central Bank (ECB) exchange rate mechanism (ERM II) monetary framework, which, according to the Agency, would further bolster policy credibility.
The outlook could be revised to stable if pressures on Bulgaria's balance of payments emerged, fiscal buffers weakened, or if the declining trend in NPLs
reversed. This could occur if the Agency saw any indications that the real effective exchange rate was rapidly appreciating, for example, via higher price and wage inflation. This would lead to an unexpected loss of competitiveness and a deterioration in Bulgaria's external position, the Finance Ministry quoted S&P Global Ratings as saying.