site.btaAging Population, Weak Infrastructure Are Bulgaria's Economic Weaknesses - Moody's

The small size of Bulgaria's economy is partly offset by relatively high income levels, although an aging population and weak infrastructure represent structural economic weaknesses, according to the periodic review of Bulgaria's rating issued by the international agency Moody's on January 23. The agency specified that this publication does not announce a credit rating action and is not an indication of whether action on the credit rating is likely in the near future.

According to Moody's, Bulgaria's credit profile reflects the low but rising government debt burden and strong debt affordability. Membership in the European Union (Aaa stable) and euro area membership support institutions and governance strength, although control of corruption remains a significant challenge.

The credit agency pointed out that the adoption of the euro on January 1, 2026, was positive for Bulgaria's credit rating, but the main benefits, such as the elimination of foreign currency risk for euro-denominated debt, have already been factored in Bulgaria's Baa1 rating.

According to the publication, the fact that the Bulgarian government resigned in December 2025 after mass protests across the country is a sign that the causes of the internal political instability that has plagued Bulgaria since the beginning of 2020 have not been resolved.

An immediate risk resulting from political instability is the danger of difficulties in implementing the reforms and investment targets under the Recovery and Resilience Plan (RRP) by the August 2026 deadline. Moody's baseline forecast assumes that around two-thirds of the remaining RRP funds under the fourth and fifth payment tranches which total around EUR 2.5 billion (just over 2% of 2026 GDP) will be disbursed.

The agency expects government debt relative to GDP to increase above 30% in 2026, rising gradually to 37% by 2030, from around 24% in 2024. This will be driven by a combination of persistent headline deficits of around 3% of GDP and capital injections into state-owned companies. Despite a significant increase, the government's debt burden will remain below Baa1-rated median, and debt affordability metrics will remain significantly stronger than the rating peer median.

Upward pressure would build on Bulgaria's ratings if evidence emerges of improved institutional effectiveness in implementing structural reforms, raising Moody's expectations for Bulgaria's long-term potential growth rate and more generally economic strength. A conduct of fiscal policy that leads to a more modest weakening of government fiscal metrics than currently expected would also add to upward rating pressure.

On the other hand, downward pressure would build on Bulgaria's ratings, if a substantial and sustained weakening of the government's key fiscal metrics beyond the current expectations was to become evident, or if the economy were to significantly undershoot expectations for its medium to long-term potential growth rate.