Scope Ratings GmbH (“Scope”) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations, performs a monitoring review.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. As part of the monitoring review, Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted either by performing a peer comparison, benchmarking against the rating change drivers, and/or a review of the credit ratings` performance over time, as deemed appropriate by the Lead Analyst or the Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology(ies), including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Bulgaria (BBB+/Stable; S-2/Stable) on 29 November 2021.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action on the credit ratings of this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Bulgaria’s long-term ratings at BBB+/Stable are underpinned by: i) successful entry to the Exchange Rate Mechanism II (ERM II) on 10 July 2020, which supports a reduction of external-sector risks, anchored as well by enhancements made to FX-reserve coverage. Entry to ERM II provides a roadmap to the adoption of the euro over the medium run; and ii) reductions in financial-system risk and significant reforms made in the area of banking-sector governance, underscored by successful entry to the EU’s Banking Union. In addition, the country’s low level of government debt, prudent policy framework of recent years and a commitment to reform are credit strengths.

Challenges relate to: i) the economy’s vulnerability to shocks as a small, open economy – including recognising moderate economic and fiscal deterioration that has been experienced in the Covid-19 crisis; ii) elevated non-performing loans above the EU average and restrictions on the Bulgarian National Bank in serving as the lender of last resort to banks; and iii) institutional and demographic weaknesses.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the coming 12 to 18 months.

The ratings/Outlooks could be upgraded if: i) Bulgaria sustainably raises its economic growth potential, ensuring continued convergence with EU average incomes; ii) progress is made in addressing institutional challenges, such as the rule of law and the fight against corruption; and/or iii) additional reforms support resilience of the non-banking financial system and/or progress is made under other euro-area convergence priorities, in aggregate supporting steps towards euro accession.

Alternatively, the ratings/Outlooks could be downgraded if: i) reform momentum as well as institutional convergence with the euro area weakens, delaying the timetable for euro-area accession and weakening economic growth potential; ii) institutional challenges and/or political instability escalate(s); iii) fiscal discipline deteriorates and Bulgaria’s debt ratio continues to increase above expectations; and/or iv) there is stress in the banking system or measures of external-sector resilience weaken

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 8 October 2021) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Levon Kameryan, Senior Analyst
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.