Fitch rating agency has affirmed Bulgaria's Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-', and its Long-term local currency IDR at 'BBB'.
The outlook on both ratings is stable.
Fitch has simultaneously affirmed Bulgaria's Short-term rating at 'F3' and Country Ceiling at 'BBB+'.
The affirmation reflects Bulgaria's successful fiscal consolidation and stable monetary policy and the rebalancing of the economy. However, growth remains weak by 'BBB' range standards, and the risk of contagion from any intensification of the eurozone crisis through trade and financial channels remains material, forestalling any upward momentum in the ratings at present.
Fitch expects Bulgaria's GDP to grow by 0.9% in 2012. Fitch projects this will be driven by domestic demand, with increased EU funds absorption boosting public and private sector investment, and be less reliant on exports as the eurozone crisis continues.
Under Fitch's baseline scenario that Greece does not leave the eurozone, the agency expects Bulgaria's GDP to grow by 1.9% and 2.5% in 2013 and 2014, respectively.
Bulgaria is particularly exposed to the continuing eurozone crisis through the financial channel, due to the significant (21% of total assets), albeit declining, role of subsidiaries owned by Greek parent banks in the Bulgarian banking sector. In the event of a disorderly eurozone exit by Greece, the ability of Greek parent banks to maintain support for foreign subsidiaries may be severely compromised, leading to a possible rise in contingent liabilities for the sovereign.
Combined with declining asset quality in the system more broadly (non-performing loans were 17% of the total in May 2012 and have yet to
peak) there could be pressures on profits, capital and liquidity levels. Against this, the Bulgarian banking system has accumulated substantial buffers, including capital in excess of the regulatory minimum, of BGN 2.9 B (USD1.8bn, 4% of GDP) in March 2012.
Fitch expects the 2012 fiscal budget deficit target of 1.6% of GDP (ESA 95 basis) to be achievable, mainly due to a track record of successful control of expenditure. Fiscal reserve levels fell to around 6% of GDP at end-May 2012, although the reserve will receive a boost following the issuance in July of EUR1bn five-year Eurobonds.
The fiscal reserve was drawn down from an admittedly high level of 12% of GDP in 2008 for deficit financing purposes, although Fitch notes that the Bulgarian sovereign retains the ability to access markets.
Hence the agency does not view the decline in reserves as a stress indicator that in itself puts further negative pressure on the ratings at their current level.
Nonetheless, the decline in fiscal reserves has reduced fiscal buffers, which a small, open economy like Bulgaria with its currency board arrangement needs in order to counteract external shocks, the agency said.
Text: novinite.com
(20.07.2012)