Moody's Reviews Bulgaria Ratings For Possible Upgrade

Moody's Reviews Bulgaria Ratings For Possible Upgrade

Moody's Investors Service said on Tuesday it has placed Bulgaria's Baa3 government rating on review for possible upgrade, reflecting its healthy government finances and ongoing improvements in institutional strength.

The outlook had been positive since January 2010.

The move comes thanks to the government's strong balance sheet, a prudent budget reserve and expectations it will bring its deficit below the European Union's 3% limit, Moody's said.

Moody's on Tuesday said a key focus of the review will be in the area of public finances, given the importance of maintaining low debt for the credibility of the CBA.

In this context, Moody's will examine the government's medium-term budget strategy as envisioned in its forthcoming submission of its Convergence Programme to the European Commission.

In particular, the rating agency will monitor the debate surrounding the new fiscal rule in order to ascertain whether the envisaged restrictions will preserve low government debt without compromising its fiscal flexibility.

The agency will also evaluate the ongoing discussions concerning reforms to the pension system, where the goals are to expand working lives and to further develop private pension savings in order to deepen the domestic capital market.

Moody's said it will try to evaluate how vulnerable Bulgaria's macroeconomic stability could be to a further deepening of the Greek fiscal and economic crisis, or to other external shocks that would put the government finances and economy at risk.

Moody's review will look at whether the prospects for growth are likely to be constrained even further by stagnant bank credit conditions, given the roughly 30% of the system owned by Greek parent banks.

Although Bulgarian banks, which are 82% foreign-owned, are well-capitalized and liquid despite relatively high non-performing loans, the Greek-owned banks are a source of potential risk, Moody's said. /Source: Sofia News Agency/

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