SOFIA, Nov 7 (Reuters) - Bulgaria’s fiscal and current account surpluses provide it better protection from external risks than before the global economic crisis a decade ago, a senior Standard & Poor’s credit analyst said in an interview.
Ludwig Heinz, S&P’s primary Bulgaria analyst, said the country’s planned accession to the euro zone’s exchange rate mechanism, a precursor to joining the single currency, would be a clear trigger for a rating upgrade.
Other triggers, he said, would be further reductions in bad loans or a better-than-expected fiscal performance.
S&P upgraded Bulgaria’s outlook to positive in June, saying it could lift its sovereign ratings over the next 12-24 months. It assigns the country a BBB- rating, at the lowest end of investment grade. The next rating update is due on Nov. 30.
“The economy is performing quite well, the fiscal side is very strong, debt very low and the government has achieved surpluses over the past few years,” Heinz told Reuters.
“On the external side, Bulgaria is much better positioned than a few years ago, given that there is a current account surplus and external debt has been lower,” he said.
The formerly communist, Balkan state sees its economy growing by 3.6 percent this year and 3.7 percent in 2019. The government plans to end 2018 with a surplus of 0.5 percent and run a small fiscal deficit next year.
Domestic demand should underpin growth in the next few years, Heinz said, adding that risks to the open economy might come from a slowdown in its main trading partner, the euro zone.
“(But) even if there was a moderation in the growth rates, the Bulgarian economy is better protected than it was before the 2008 crisis,” he said.
Bulgaria’s financial system has steadied since its fourth-largest bank collapsed in 2014, with non-performing loans falling to 8.5 percent of the total in September from 11.4 percent a year ago and over 17 percent four years ago.
Heinz said Bulgaria’s burden of non-performing loans was easing rapidly, but was still higher than peers in central and eastern Europe such as Hungary and Poland.
Despite meeting the nominal criteria for joining the euro zone, Bulgaria did not secure a fast track from the European Central Bank to euro membership earlier this year. The ECB said Bulgarian banks require tougher supervision before it can join.
Sofia has made a number of commitments, including cooperating with the ECB so that in July 2019 it could join both the bloc’s banking union and the ERM-2. (Reporting by Tsvetelia Tsolova Editing by Mark Heinrich)