Standard & Poor's Ratings Services Affirm Bulgaria's Credit Ratings

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Standard & Poor's Ratings Services Affirm Bulgaria's Credit Ratings

Standard & Poor's Ratings Services today said it had affirmed its 'BBB+' long-term and 'A-2' short-term foreign and local currency sovereign credit ratings on the Republic of Bulgaria.

The outlook is stable.
The ratings on Bulgaria reflect the government's strong track record of coordinating fiscal and demand management policies, the subsequent sustained reduction in the public debt burden, solid growth prospects in the medium term, a relatively strong external balance sheet, and the country's recent EU accession.

"The 2007 budgetary surplus is expected at around 3.5% of GDP, which will contribute to a sustained decline in gross debt," Standard & Poor's credit analyst Marko Mrsnik said.

"This indicates firm policy support to the Currency Board Arrangement (CBA) in the wake of high external imbalances and rising wage and inflationary pressures." Bulgaria's high current account deficit, expected at above 20% of GDP in 2007, is fully covered by net foreign direct investments.

While the over-financing of the current account gap stimulates inflationary growth of the monetary base via the currency peg, high FDI coverage dampens the build-up of external debt.

"Continued fiscal prudence, improvements in inflation, especially a clear moderation of wage pressures, and a narrowing of the external imbalances would underpin the ratings on Bulgaria at their current level," Mr. Mrsnik said.

"Conversely, sustained economic imbalances, a loss of external competitiveness placing pressure on the tenability of the exchange rate, and/ or policy slippage significantly delaying the EMU membership, could lead to the ratings coming under pressure."

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