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Moody’s upgrades Bulgaria to Baa1, changes outlook to stable from positive – 12 Oct 2020


SOFIA (Bulgaria), October 12 (SeeNews) – Moody’s Investors Service said that it upgraded the government of Bulgaria’s senior unsecured and long-term issuer ratings in foreign and local currency to Baa1 from Baa2 and changed the outlook to stable from positive.

Moody’s also upgraded Bulgaria’s senior unsecured MTN programme rating to (P)Baa1 from (P)Baa2, it said in a statement on Friday.

One of the main drivers for the upgrade was the country’s progress towards euro area accession, which is expected to enhance institutional capacity and policymaking.

Moody’s also said in its statement:




The first driver of the upgrade is based on Bulgaria’s progress towards euro area accession and the associated strengthening of institutional capacity and policymaking. On 10 July 2020, the president of the European Central Bank (ECB), euro area finance ministers and the finance ministers and central bank governors of Denmark and Bulgaria decided to include the Bulgarian lev in the Exchange Rate Mechanism (ERM II)I, which is one of the final critical steps prior to becoming a member of the euro area. The announcement amid the coronavirus disruption results from a comprehensive reform programme. As of July 2020, Bulgaria had fully completed the actions to which the country committed in the seven key following fields: 1) banking union, 2) macroprudential supervision, 3) non-banking supervision, 4) insolvency framework, 5) strengthening of the anti-money laundering framework, 6) modernization of the framework of State-owned enterprises (SOE’s) in line with best international practices and 7) implementation of the law ratifying the agreement on the transfer and mutualisation of contributions to the single resolution fund. In parallel, the European Central Bank (ECB) and the Bulgarian National Bank (BNB) have established a close cooperation over bank supervision.

In Moody’s view, the successful completion of the reform programme speaks to the credibility of Bulgaria’s ambition to join the euro area. Moody’s believes that Bulgaria’s policy effectiveness has strengthened over the recent years. A key institutional setting, the currency board with the euro as a reserve currency is underpinned by sound monetary and macroeconomic policymaking, providing a stable framework for economic activity in a very uncertain international environment. The credibility of the currency board also relies on the country’s structurally prudent fiscal stance.

Going forward, Moody’s expects Bulgaria to continue to pursue sound economic and financial policies, as entering the euro area will require both sustainable economic convergence and readiness to participate in the banking union. On economic convergence, compliance with the convergence criteria is already advanced, as noted in the ECB’s 2020 convergence report.

From a macroprudential and banking perspective, Moody’s believes that the close cooperation between the ECB and the BNB and the inclusion of five of the largest banks operating in Bulgaria under the ECB’s supervision will further enhance the system’s regulatory environment and promote the adoption of best practices.

Finally, Bulgaria’s legal framework will be strengthened as national legislation adapts to fully comply with Article 131 of the Treaty in the areas of central bank independence, monetary financing prohibition and legal integration into the Eurosystem.


The second driver for the upgrade relates to Bulgaria’s strengthened fiscal credit profile despite the negative impact of the coronavirus pandemic. By entering ERM II, Bulgaria makes a major step towards the eurozone, an economic area with which the country has strong ties. In 2019, 80% of Bulgaria’s general government debt was denominated in euros. Under Moody’s Sovereign Ratings Methodology, a high share of foreign-currency denominated debt lowers our assessment of fiscal strength to reflect the risk of a sudden rise in interest costs and increase in debt stock in the case of a currency depreciation, thereby increasing the sovereign’s overall debt burden and decreasing its debt affordability. In the case of Bulgaria, the highly credible currency board that has been in place for more than two decades already mitigates this risk. Entering ERM II further decreases this risk, as it brings Bulgaria closer to its predominant currency of issuance.

Bulgaria’s credit profile also benefits from a strengthening of the government’s strong balance sheet. Four years of growing structural fiscal surpluses have brought the debt/GDP ratio to 20.4% in 2019, the second lowest level in the European Union after Estonia. In light of declining financing costs, Bulgaria’s debt affordability as measured by interest payments to general government revenues has significantly improved, to 1.5% in 2019 against 2.5% in 2016. The country also benefits from sizeable fiscal reserves, which Moody’s expects to remain stable at around 10% of GDP.

This year, the coronavirus pandemic will negatively affect Bulgaria’s public finances, as Moody’s anticipates a 3.5% drop in GDP before a 2.7% recovery in 2021. The economic recession and the policy package to support activity will weigh on government revenues and public expenditure, pushing the deficit to 3.0% of GDP. For 2021, Moody’s expects a 1.6% of GDP deficit. Debt affordability will remain strong, as the interest payments/revenue ratio stabilizes at around 1.4%. As a result, Moody’s forecasts the debt ratio to reach 23.9% of GDP this year and 24.2% of GDP in 2021, before gradually declining to 23.5% of GDP in 2022.

The new legislation in Bulgaria effective since May 2009 gives foreign investors in Bulgaria significant benefits both in terms of their business in this country and in personal terms as foreign citizens. On the one hand, the investors’ business is supported by investment promotion measures provided for by the Investment Promotion Act and the Rules on its implementation. On the other hand, foreign investors who have invested in Bulgaria more than BGN 1 million (EUR 511,292) are granted a special status by the government in accordance with the laws currently in force.

Under that programme, foreign investors may obtain a permanent residence permit and, together with their families, enjoy the unique privilege to be exempt from the obligation to settle and physically reside in Bulgaria, as provided for by Article 40, Paragraph 1, Items 5 and 6 of the Foreigners in the Republic of Bulgaria Act (FRBA). That exemption applies only to foreign investors covered by the provisions of Article 25, Paragraph 1, Items 6, 7 or 8 of the FRBA, and the members of their families. A permanent residence permit is issued by the Ministry of Interior based on a certificate by the Ministry of Finance proving the amount and type of the investment made. Foreign investors holding such permits may freely enter and leave Bulgaria for unlimited periods just because they have made a significant investment in the local economy according to the abovementioned article.

                   To apply for a permanent residence permit, a foreign investor shall enter Bulgaria with a visa type D. Strict legal procedures are in place and shall be observed. The first step is the issuance of a certificate by the Ministry of Finance, the second one – the issuance of a visa type D, and finally – the issuance of a permanent residence permit. The procedures are provided for by the Foreigners in the Republic of Bulgaria Act, the Rules on its implementation and the Ordinance on the Terms and Procedure for Visa Issuance and Visa Regime Determination. These legal instruments regulate the entry and residence in, and the leaving of the Republic of Bulgaria by non-EU citizens; it is those citizens that the above residence benefits apply to. The rights of EU citizens are regulated by the European Union Citizens and Members of Their Families Entry and Residence in and Departure from the Republic of Bulgaria Act.

You can find additional information on the requirements, the relevant investments, investment funding and the legal terms and conditions concerning the Investment Programme, residence and citizenship on the website of the InvestBulgaria Agency (IBA).

                   TheIBA’s task is to support potential and existing investors in researching investment opportunities in Bulgaria and implementing greenfield projects. Its team includes 35 specialists in Sofia and a few more abroad, all of them working in accordance with the highest project management, business confidence and integrity standards. TheIBAis authorised to contact directly all government institutions in Bulgaria with a view to facilitating the entry and development of investors’ business in Bulgaria. TheIBAis the authority issuing investor certificates and applying the investment promotion measures under the Investment Promotion Act. It provides custom administrative and information services to investors with regard to the investment environment and the business climate in Bulgaria, as well as the locations and industrial areas to invest in.

Useful links you can find detailed information on exchange rates on the official website of theBulgarian National Bank

You can find information on currency control on the website of the InvestBulgaria Agency.

Foreign investment promotion:

One of the main priorities of the Republic of Bulgaria is promoting investment within its territory, regulating the operations of government authorities in the field of investment promotion, as well as investor protection.

               One of Bulgaria’s main goals is improving the competitiveness of the Bulgarian economy through boosting investment in scientific research, innovation and technological development in high-added-value production and services, while observing the principles of sustainable development. Others include improving the investment climate and achieving inter-regional cohesion in social and economic development, and creating new, highly productive jobs.

Investment Promotion ACT

How to register a company

You can find more information on the websites of:

the Registry Agency

the Invest Bulgaria Agency

Bulgarian Chamber of Commerce and Industry

Import and export

You can find comprehensive information on the import and export terms and conditions on the following web portals:

Ministry of Finance

Customs Agency

Ministry of Economy, Energy and Tourism

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