Bulgaria could be upgraded - Moody's

Bulgaria could see its government Baa3 rating upgraded by Moody's after the rating agency recognised the country's "healthy" public finances and "ongoing improvements in institutional strengths".

Explaining the potential move, Moody's commended Bulgarian government's strong balance sheet and a reduction of the country's fiscal deficit to below the European Union's 3 per cent of GDP ceiling. State institutions were also praised for efficient absorption of EU cohesion funds and new measures to tackle the "still-high levels of corruption and crime".

The agency also welcomed the political consensus, which had developed around "currency board management to safeguard macroeconomic stability" – although, it maintained that Bulgaria was still vulnerable to external shocks due to relatively high levels of external debt and close connections with the Greek banking system. A Moody's spokesman said: "The outlook had been positive since January 2010.

"Two important government priorities - the more efficient absorption of EU development aid and the improvement of the judicial and legal environment have already demonstrated progress. Moody's foresees deeper efforts in these areas, with the creation of specially-focused ministries and agencies to address the underlying causes of the problems that Bulgaria faces.

"Bulgaria's growth rate will be more dependent on external demand than was the case prior to the crisis. Such a pace should nonetheless allow the country's incomes to continue to converge towards the EU average, albeit at a slower pace than in the 2000s. Although Bulgarian banks, which are 82 per cent foreign-owned, are well-capitalised and liquid despite relatively high non-performing loans, the Greek-owned banks are a source of potential risk."

Meanwhile Bulgaria's national census revealed that the country's population has declined by 582,000 in the last ten years and by 1.5 million since 1985. The trend is being blamed on low fertility rates rather than emigration.