site.btaMoody’s: Eurozone Entry Supports Bulgaria’s Governance, But Corruption Remains Major Challenge

Membership in the European Union and Bulgaria’s upcoming adoption of the euro on January 1, 2026, are supporting the country’s institutions and governance stability, but corruption remains a significant challenge, according to the latest country periodic review announced by the international credit rating agency Moody’s Ratings.

While the small size of the Bulgarian economy is noted as a limiting factor, it is partially offset by relatively high income levels, the report states. However, population aging and weak infrastructure continue to be structural economic weaknesses.

On July 8, Bulgaria’s entry into the eurozone was officially confirmed following the adoption of three legal acts by the Economic and Financial Affairs Council (ECOFIN) of the EU. Moody’s notes that while this confirmation is positive for Bulgaria’s credit outlook, the primary benefits of euro adoption—such as the elimination of currency risk for euro-denominated debt and ECB oversight of major banks—have already been factored into Bulgaria’s long- and short-term credit rating of Baa1.

The government of Prime Minister Rosen Zhelyazkov, which took office in January 2025 following a period of caretaker administrations and two snap elections within a year, has provided renewed momentum to the National Recovery and Resilience Plan (NRRP), analysts note.

Despite progress since the beginning of the year, Bulgaria continues to lag behind most EU countries in implementing the NRRP and meeting the final deadline of August 2026. Accessing the full amount of EU grant funding remains a challenge, Moody’s warns. Earlier this week, Bulgaria resubmitted its second payment request under the NRRP, amounting to EUR 653 million.

Regarding economic growth, Moody’s expects it will remain supported by strong private consumption, though weak external demand will limit expansion. Factoring in the potential positive impacts from full Schengen membership starting in 2025 and eurozone entry in 2026, GDP growth is projected to slow to 2.5% in 2025 and 2.6% in 2026.

Defense spending and energy investments are likely to increase fiscal pressures in the coming years, with moderate budget deficits around 3% of GDP expected in the medium term. Public debt as a share of GDP is projected to rise to 25.9% in 2025 and 27.7% in 2026, up from 24.1% in 2024.

In January, Moody’s confirmed Bulgaria’s Baa1 rating with a stable outlook, forecasting slightly higher debt levels—27% of GDP by end-2025 and around 29% by end-2026, compared to a projected 24.8% in 2024.

Moody’s notes that Bulgaria’s economic and fiscal performance could outperform expectations if institutional quality improves and structural reforms accelerate. However, the country’s fiscal strength could deteriorate if the commitment to maintaining a deficit at or below 3% of GDP, as required by eurozone convergence criteria, weakens after the euro is adopted.

The agency clarifies that the current review does not include a reassessment of Bulgaria’s credit rating and is not indicative of a forthcoming rating change.