Deficit Hike Dents Key Bulgarian Rating Strength, Fitch SaysFinance | October 8, 2014, Wednesday // 11:12| views
The budget revisions proposed by the caretaker cabinet highlight how over-spending, slower growth forecasts and bank runs i will weigh on Bulgaria’s public finances, Fitch Ratings has said.
While public finances remain a key rating strength, their capacity to counterbalance the ratings weaknesses will be diminished, even though low debt and contained deficits provide a “significant fiscal buffer”, the global ratings agency said in a press release.
The proposed increase in 2014 fiscal deficit target to 4% of GDP from 1.8% and the potential issuance of BGN 4.5B in new debt to finance the shortfall and provide liquidity to banks show how Bulgaria is trying to cope with slower-than-projected economic growth (revised to 1.5% from 1.8%), higher-than-expected spending in the first nine months of the year and costs relating to the runs on Corporate Commercial Bank and First Investment Bank in the summer.
With no clear winner emerging from October 5 early parliamentary elections Bulgaria may be faced with “further political uncertainty”, Fitch pointed out.
“We expected the elections to result in another coalition government, but they have delivered a more fragmented parliament that may make building and maintaining an effective coalition difficult, even if GERB's showing arguably represents a mandate for fiscal discipline and structural reform.”
Fitch Ratings analysts opined that the government that will be formed after the elections will be faced with weaker-than-expected fiscal outturns so far in 2014 and the need to approve a 2015 budget quickly, which will leave it with little option but to adopt the revisions.
According to the ratings agency, the increased borrowing would take gross general government debt-to-GDP ratio to 28% - still more than 10 percentage points below the 'BBB' median, but well above Fitch’s existing baseline scenario of that ratio peaking at around 23% in 2017-2018.
In July, Fitch affirmed Bulgaria’s long-term foreign currency issuer default rating (IDR) at ‘BBB-‘ and its long-term local currency IDR at ‘BBB’. Both ratings have a stable outlook.
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