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.

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. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or 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 (long-term local- and foreign-currency issuer and senior unsecured debt ratings: BBB+/Stable; short-term local- and foreign-currency issuer ratings: S-2/Stable) on 23 August 2022.

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 connected with 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; ii) reductions in financial-system risk and significant reforms made in banking-sector governance, underscored by successful entry to the EU’s Banking Union; iii) the country’s low level of government debt and prudent policy framework of recent years; and iv) a commitment to continued structural reform. Entry to ERM II provides a roadmap to the adoption of the euro over the medium run and associated benefits of improving the country’s governance and sustaining its reform agenda.

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) 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) further progress is made under euro-area convergence priorities, in aggregate supporting steps towards euro accession; ii) Bulgaria sustainably raises its economic growth potential, ensuring continued convergence with EU average incomes; and/or iii) progress is made in addressing institutional challenges, such as the rule of law and the fight against corruption.

Alternatively, the ratings/Outlooks could be downgraded if: i) reform momentum as well as institutional convergence with the euro area weaken, delaying the timetable for euro-area accession; ii) institutional challenges and/or political instability escalate(s); iii) there is a sharp slowdown in GDP growth, due, for example, to intensified energy supply shock; iv) fiscal discipline deteriorates and Bulgaria’s debt ratio continues to increase above expectations; and/or v) 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 Methodology, 8 October 2021) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Levon Kameryan, Associate Director.

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