Investing.com -- S&P Global Ratings has confirmed its ’BBB/A-2’ long- and short-term foreign and local currency ratings on Bulgaria. The outlook remains positive, reflecting the view that there is a one-in-three likelihood that Bulgaria will join the eurozone within the next year.
Bulgaria’s economy, a small open European economy with a longstanding currency board, is expected to benefit from access to euro area capital markets and promote monetary stability once it enters Europe’s Economic and Monetary Union (EMU) as early as next year. The country’s services surplus stood at 7.5% of GDP in 2024, indicating the resilience of the economy despite a challenging external environment and a few structural reforms.
The country’s new government, formed in January 2025, is led by Prime Minister Rosen Zhelyazkov of the Citizens for European Development of Bulgaria (GERB) party. The coalition, which also includes members from the Bulgarian Socialist Party and There Is Such a People, is expected to maintain stability thanks to their shared objective of eurozone accession.
Bulgaria is on track to join the eurozone early next year, with the 12-month average inflation rate standing at 2.7% as of April. An official assessment of alignment will be included in the European Commission’s European Central Bank (ECB) convergence reports, expected to be published on June 4, 2025. The final decision on membership lies with the Eurogroup and the EU Council.
Despite potential political instability, Bulgaria’s economy has shown resilience, with its services sector posting external surpluses in excess of 7% of GDP. The country’s direct trade exposure to the U.S. is less than 4%, suggesting that U.S. tariffs on Europe will primarily affect Bulgaria indirectly through reduced demand from its largest trading partners, particularly Germany and Romania.
Prime Minister Zhelyazkov, who took office in January 2025, aims to expedite EU fund disbursements and steer Bulgaria into the EMU early next year. The country’s real GDP growth is forecasted to be 2.4% in 2025, gradually increasing to 3.0% in 2028 due to a rebound in external demand.
Bulgaria is one of the top recipients of EU funds per capita, but the absorption of Recovery and Resilience Facility (RRF) funds is among the lowest. Approximately half of the allocated amount may be permanently lost, given constraints on Bulgaria’s absorption capacity.
Bulgaria’s inflation increased at the beginning of 2025, partly due to increases in regulated utility prices and value-added tax rates. Despite this, the country is expected to meet the price stability criterion necessary for entering the eurozone. Potential accession to the eurozone would enhance Bulgaria’s monetary policy effectiveness, reduce foreign exchange risk, and provide better access to the eurozone’s deep and liquid capital markets.
Bulgaria’s banking sector is profitable, liquid, and adequately capitalized. Private sector credit growth reached a high 15% year on year in March 2025, partly driven by the anticipation of eurozone accession. The Bulgarian National Bank has introduced measures to increase the resilience of the banking system, such as raising the minimum reserve requirement rate, the countercyclical buffer rate, and introducing borrower-based macroprudential measures since October 2024.
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