Moody’s upgrades Bulgaria’s rating to Baa2

• Posted on Apr 01, 2011
• In Bulgaria

Moody’s Investors Service today upgraded Bulgaria’s government debt ratings to Baa2 from Baa3, reflecting its ongoing fiscal discipline and improving institutional strength as well as the financial system’s relative resilience in a volatile regional environment. The rating outlook is stable. This rating action concludes Moody’s review for possible upgrade that was announced on 5 April 2011. Moody’s said today’s upgrade of Bulgaria’s government ratings was motivated by the following three factors:

1. Effective fiscal consolidation supplemented by recent structural reforms, which are expected to maintain Bulgaria’s very low debt burden by leading to a further reduction in the general government deficit to below the 3% Maastricht limit in 2011 and roughly balanced budgets in the years to come;
2. Strengthened institutional capacity thanks to determined efforts to increase the absorption of EU funds and to reform systems such as the judiciary and the police in order to improve the rule of law; and
3. Strong liquidity and capital buffers of both the financial system and the government, which in Moody’s opinion are sufficient to absorb shocks deriving from regional volatility. In related actions, Moody’s also upgraded Bulgaria’s country ceiling for foreign currency deposits to Baa2/P-2 from Baa3/P-3, and aligned the country ceiling for local currency deposits to the Baa2 level (down from Baa1) because of Bulgaria’s currency board arrangement in which the Bulgarian lev is pegged to the euro. In addition, the country ceiling for foreign currency debt was raised from A1 to Aa3, equivalent to the Aa3 country ceiling for local currency debt.

For more information on the rating rationale, what could influence the rating in the future and the methodology, please visit Moody’s.

Source: Moody’s Investor Service