site.btaMorningstar DBRS Confirms Bulgaria’s Credit Rating at BBB (High), Stable Trend

The global credit rating agency Morningstar DBRS has confirmed Bulgaria's Long-Term Foreign and Local Currency - Issuer Ratings at BBB (high). At the same time, the Toronto, Canada, based institution confirmed Bulgaria's Short-Term Foreign and Local Currency - Issuer Ratings at R-1 (low). The trend on all ratings is Stable, the agency says on its website.

The Stable trend reflects Morningstar DBRS' view that the risks to Bulgaria's credit ratings remain balanced. It says the country's accession to the euro area in January 2026 will decrease foreign currency risks for the Bulgarian government as a large part of public debt is denominated in euro. Furthermore, accession is likely to foster a further integration of the Bulgarian economy with other European economies.

At the same time, budgetary pressures could increase in coming years if the projected sharp increase in government revenues does not fully materialize, the agency warns.

The report further says that the Bulgarian government expects public revenues to rise by more than three percentage points of GDP in 2025, a large part of which relates to general measures which seek to enhance tax compliance and reduce the size of the informal economy. This large increase in revenues is planned to more than offset the upswing in expenditure levels which results from a step-up in defence spending and a continued strong expansion of the public wage bill and pension spending.

The government projects the fiscal deficit to narrow from 3.0% of GDP in 2024 to 2.9% in 2025 and to average 2.7% between the years 2026 and 2028, Morningstar DBRS notes. While the public debt-to GDP ratio is forecast to increase from 24.1% in 2024 to 36.4% in 2028 on the back of sustained primary deficits, the agency continues to view the low level of public debt as a major credit strength.

Apart from low government debt levels, Bulgaria's credit ratings are underpinned by its membership of the European Union (EU). The credit ratings also reflect the good financial condition of the domestic banking sector, the report says.

It adds, however, that significant structural challenges weigh on the credit profile, including those related to the low level of labour productivity, the declining and ageing population, and the large informal economy.

In addition, the small and open nature of the Bulgarian economy renders it vulnerable to external shocks. While Morningstar DBRS views Bulgaria's membership in the EU as an important anchor for institutional quality, governance deficiencies weigh on the credit profile.

Morningstar DBRS says it could upgrade Bulgaria's credit ratings if one or a combination of the following occur: (1) there is evidence of successful implementation of measures that improve income and productivity, leading to a material convergence with the EU average; or (2) progress in strengthening governance and institutional capacity and a lasting increase in political stability.

In July, Fitch Ratings and S&P Global Ratings upgraded Bulgaria’s long-term foreign currency credit rating to “BBB+” with a Stable Outlook. This is the highest level within the upper-medium investment-grade category. Similarly, the European rating agency Scope Ratings raised Bulgaria’s rating from "BBB+" to "A-" with a Stable Outlook.