S&P Revises Bulgaria Outlook to Negative on Low Economic Growth

Standard & Poor’s Ratings Services revised its outlook for Bulgaria to negative from stable on low economic growth, high unemployment and political uncertainty amid recurring protests.

The negative outlook indicates at least a one-in-three possibility that S&P could lower the ratings on Bulgaria within the next two years if the political environment deteriorates, weighing on already-weak growth prospects, the rating company said in a statement today. Bulgaria’s economic recovery has been “shallow” with real growth averaging 1 percent from 2010 to 2012, S&P said.

“We expect economic stagnation in 2013, with higher public consumption and net exports almost completely offset by anemic household consumption and private investment growth,” S&P said. “We also believe that the uncertain political environment and the possibility of early elections will slow the adoption of reforms, weighing on potential economic output.”

Bulgaria has been gripped by political turmoil since February, when anti-austerity protests that echoed unrest across Europe forced out former Prime Minister Boyko Borissov’s administration. Premier Plamen Oresharski’s minority cabinet took power after a May snap election. It survived two no-confidence votes and recurring protests against what demonstrators say is a corrupt political system.

S&P affirmed its ’BBB/A-2’ long- and short-term sovereign credit ratings, level with Russia, Brazil and Lithuania. Bulgaria’s sovereign debt is rated Baa2 by Moody’s and BBB- by Fitch Ratings.

Bonds, Debt

Bulgaria plans to raise about 1 billion euros ($1.34 billion) of Eurobonds next year to repay maturing debt, Oresharski said in an interview on Nov. 12. Bulgaria’s general government debt will increase to 15 percent of gross domestic product in 2016 from 12 percent this year, according to S&P.

S&P sees no “significant deviation from Bulgaria’s robust fiscal track record” and estimates this year’ budget deficit to widen to 2 percent of GDP, driven by increases in social payments and pensions and repayment of arrears to the corporate sector, which is also the government’s target.

Bulgaria’s Finance Ministry disagreed with S&P’s pessimistic economic growth prospects in an e-mailed statement, saying increased net exports and consumption, rising retail sales and industrial output, give reasons to expect higher economic growth.

Retail Sales

Retail sales rose 6.9 percent in October from a year earlier, extending seven months of growth, while output rose 4.1 percent in October, according to the statistics office.

“The government adopted a series of measures to reduce the administrative burden on businesses and encourage economic growth after a long period of suppressed investment,” Finance Minister Petar Chobanov said in the statement.

The government’s 2014 economic growth forecast is 1.8 percent, while the International Monetary Fund estimated 1.6 percent.

Bulgaria’s economy expanded 0.7 percent in the third quarter, extending 12 quarters of growth, according to data compiled by Bloomberg. Private-sector credit has growth 3 percent between 2010 and 2012 and resolution of non-performing loans, which are estimated at 17 percent of total loans, has also lagged behind, S&P said.

The yield on Bulgaria’s euro-denominated bonds maturing in 2017 rose 2 basis points, or 0.02 percentage point, to 1.859 percent at 12:20 p.m. in Sofia today. The cost of insuring the country’s debt against non-payment for five years using credit-default swaps rose two basis points to 124.

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