Fitch Ratings no longer expects that Bulgaria will enter the eurozone at the start of next year, the international rating agency said on April 26 when affirming the country’s long-term foreign-currency issuer default rating (IDR) at BBB, with positive outlook.

“Bulgaria's ratings are supported by its strong external and public balance sheets versus 'BBB' peers and credible policy framework, underpinned by EU membership and a long-standing currency board. This is balanced by low labour productivity and unfavourable demographics, which weigh on potential growth and government finances over the long term,” Fitch said in the statement.

The positive outlook reflects the prospects for euro adoption despite the expected delay.

“Despite the euro adoption process being delayed beyond January 2025 and renewed political uncertainty, Fitch considers that there is broad political commitment locally and at the EU level to euro adoption,” Fitch noted.

Meanwhile, Bulgaria's HICP inflation has slowed down significantly but remains above that of the three best performing EU member states. Fitch has projected that Bulgaria will not comply with the price stability criterion in mid-2024 but in the last quarter of this year at the earliest.

“Bulgaria is on course to meet all other euro-adoption nominal criteria (public finances, interest rate and exchange rate). Nonetheless, a lack of stable government and potentially lengthy coalition negotiations could delay the eurozone entry beyond 2025,” Fitch said.

It expects the June 9 snap general election to produce yet another fragmented parliament with pro-European parties holding a majority.

Bulgaria’s GDP is expected to grow by 2.4% in 2024 and 3.1% in 2025, accelerating from the 1.8% growth last year.

“Weak external demand, renewed political uncertainty and slow absorption of EU funds will impede economic activity in 1H24, while positive real wage growth and strong credit growth will support private consumption,” Fitch noted.

HICP inflation is projected at 3.3% in 2024 and 2.9% in 2025, down from 8.6% in 2023.