Stable new government, reforms vital for Bulgaria's credit outlook - Scope Ratings

Stable new government, reforms vital for Bulgaria's credit outlook - Scope Ratings

There is a chance for breaking the political deadlock in Bulgaria after the third parliamentary elections this year in which newly created anti-graft group ‘We Continue the Change’ (PP) is in the lead, with reforms having a vital importance for the country's credit outlook, Berlin-based Scope Ratings said on Tuesday.

"The credit outlook of Bulgaria (rated BBB+/Stable) hinges to a significant degree on creation of a stable new government prepared to act on popular demand for institutional reform following Sunday’s vote. For now, the signs are encouraging," Scope said in an analysis of the political situation in the country after the November 14 snap vote.

“The challenge for Bulgarian lawmakers, in a government which looks likely to be led by PP, will be leading the country out of the current political and pandemic crisis," Levon Kameryan, lead sovereign analyst at Scope for Bulgaria, said.

"The main task is forming a government with a clear mandate to enhance governance, strengthen the rule of law, tackle corruption and meet common EU objectives such as addressing environmental risk, improving digitisation and raising infrastructure investment.

Ending Bulgaria’s political deadlock might also facilitate agreement on January 1, 2024 euro area accession date if a new government is more committed to reform and improves longer-run economic planning, Kameryan noted.

The analyst added that critical factors to watch now are the longevity of any government that will be formed as well as its capacity to meet the requirements of the EU’s Exchange Rate Mechanism II while easing social unrest sparked by alleged corruption of the previous government.

The Bulgarian recovery plan set up by former prime minister Boyko Borisov was revised and approved by the country's caretaker government with a significant delay, with the lack of an elected Bulgarian government to this stage holding back EU funding. Bulgaria submitted its Recovery and Resilience Plan requesting 6.6 billion euro ($7.5 billion) in grants representing 10.8% of the country's 2020 GDP, to Brussels in October.

Bulgaria’s absorption rate of EU financing remains among the lowest of EU member states in central and eastern Europe (CEE), at 60% over a 2014-2020 EU budgetary period, Scope noted.

“Developing the institutional capacity needed for more efficient spending of EU funding is vital to boosting Bulgaria’s growth potential to more than a current 2.75% a year,” Kameryan said.

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