Cause and Effect in European Politics and Law

Private sector foreign debts pull down the credit rating of Bulgaria

Adelina Marini, July 24, 2009

The Japanese Credit Rating Agency confirmed the credit rating of Bulgaria for long term debt in foreign currency BBB and for long term debt in local currency BBB+. The rating perspective also remains negative. One of the reasons for keeping this rate is the still very big current account deficit as well as the significant rate of the foreign debt of the private sector. The Agency has decided to keep the rating perspective negative because the foreign financing of big debts of the private sector in Bulgaria remains vulnerable because of the global economic and financial crisis.

The Ministry of finance said that the foreign debt, accumulated in the process of fast economic growth after 2004 when it was 64% of GDP has grown to 108% of GDP in the end of 2008. The private sector debt (including debt between companies) is 89% of the whole amount of debt.

The JCR forecasts worsening of the fiscal balance for this and next year for which a number of Bulgarian economists also warned. But the Ministry of Finance claims that with a fiscal reserve of more than 12% of GDP in the end of May 2009, the government has enough capacity to meet all unforeseen circumstances, including systemic risks.

This is a consecutive agency that comes with a different forecast about the drop of GDP in Bulgaria by saying that it will be 5%. So far the IMF forecast -7% drop, the European Commission -1.8%, the Bulgarian Ministry of Finance -2.5%.