Moody's Boost Bulgaria's Credit Score

Bulgaria's credit score has been improved by Moody's rating agency because of its strong track record in managing its public finances and the increasing strength of its institutions since joining the European Union.

Lifting Bulgaria's rating one notch from Baa3 to Baa2 with a stable outlook, Moody's cited the country's low debt burden and small budget deficit backed up by recent structural reforms, its improved institutional capacity due to changes demanded by the EU, and its strong liquidity which protects it from regional volatility.

"We expect the general government financial balance to show a deficit below 3 per cent of gross domestic product in 2011, as evidenced by the results already achieved in the first half of the year," said Moody's in statement. "Moreover, the implementation of the latest pension reforms and the new financial stability pact are likely to keep the government finances balanced over the medium to long-term." Successive Bulgarian governments had a "strong track record" in managing public finances over the last decade and policymakers have a "clear determination to maintain such discipline going forward".

Bulgaria's central bank was praised for its effective management of the economy, while the finance ministry has "provided strong guidance". But though improvements have been made in the judicial and legal enforcement systems, there remains work to be done. This week a progress report by the European Commission concluded that the Bulgarian judiciary was still too slow in pursuing corruption, with cases taking longer than they should and judges themselves too often open to bribery. The monitoring system was put in place for Bulgaria when it joined the EU four years ago because it had not sufficiently dealt with corruption and organised crime.

Further explaining its rating boost, Moody's said Bulgaria would "weather the impact of the Greek debt crisis thanks to substantial liquidity and capital buffers" and the country is "well-equipped" to absorb any further shocks to the wider EU economy. Bulgaria suffered a "remarkably shallow" recession compared to its neighbours, and a large public deficit has been eliminated over the last few years. Growth has returned mainly because of external demand, competitive wages and low tax rates. Public investment supported by EU funds is also set to make a growing contribution.

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