The formation of Bulgaria’s next government is critical for the timing of the country’s euro accession, currently aimed for 1 January 2024, as well as for the progress on judicial and governance reforms, a Scope Ratings analyst said on Tuesday, adding that both developments are highly credit relevant.
“The parliamentary elections of Bulgaria yielded the expected result of the Conservatives, GERB, under Prime Minister Boyko Borissov, as the first party – although with GERB’s hold on Parliament substantively curtailed, and anti-corruption political groupings having made up significant ground,” Dennis Shen, director at Scope Rating’s sovereign and public sector team, told SeeNews in an exclusive commentary.
According to Shen, it appears likely that any government will need to incorporate either GERB and/or Slavi Trifonov’s anti-corruption, centrist party There Is Such A People which came in second in the election.
A total of six parties, including three new political formations with a strong anti-corruption, anti-status quo agenda crossed the 4% threshold in the April 4 election and will enter the new parliament, according to the final official results announced on Tuesday.
“The need to tackle multiple crises amid this severe spring wave of coronavirus alongside pressing need to facilitate spending of EU Recovery Fund monies while ensuring sustainable economic recovery increases pressure on the political leadership of Bulgaria to seek a working government,” he added.
Shen also stressed that the pro-European ethos across the Bulgarian political spectrum means that there is comparative continuity likely in at least one crucial objective relevant to the sovereign ratings, namely Bulgaria’s pursuit of euro accession in the coming years.
"Most feasible coalition scenarios after these elections would see continuation of said commitment although the time required before accession will naturally hinge substantively on the next government’s policy platform,” Shen opined.
“This process of adopting the euro is crucial for the nation’s medium-run creditworthiness due not only to enhancing discipline in reform momentum and fiscal management in the period under ERM II but in the alleviation of contingent risks from the Bulgarian economy’s very high ‘euro-isation’ upon euro adoption while providing the economy and financial system access to facilities such as ECB purchases facilities in the future,” he stressed.
In his view, Bulgaria’s preparations for accession to the euro area could see delay under a scenario of any extended formation of the next government should this postpone reform.
“The quality and stability of the next government is as well certainly relevant for Bulgaria’s credit ratings,” according to Shen. “Whether the next government is capable of passing challenging reform aimed at tackling Bulgaria’s substantive institutional shortcomings and areas of required institutional convergence in, for example, the financial supervisory framework is paramount."
Alternatively, Shen said, a weak government, such as a minority one, could delay euro-area entrance prospects if economic convergence meets roadblocks, draw out demonstrations should institutional reforms be hindered and increase the likelihood for early parliamentary elections.
Bulgaria was ranked a tied-last of the EU under Transparency International’s most recent Corruption Perceptions Index. Some progress, however, has been made in associated areas – as reflected in progress, as an example, under the country’s post-EU accession Cooperation and Verification Mechanism as well as improvement on the political stability and government effectiveness categories of the World Bank’s Worldwide Governance Indicators.
Since 2007, Bulgaria has achieved substantively higher real GDP per capita growth than peer countries of the EU (3.3% in Bulgaria over 2007-19 versus 1.1% of the EU aggregate).
Scope’s next scheduled review of Bulgaria’s BBB+/Stable Outlook investment-gra