Moody's Assigns Provisional Baa2 Rating to Bulgaria's  Global Medium Term Note Programme


Sofia, February 7 (BTA) - Moody's Investors Service has assigned a provisional senior unsecured
Baa2 rating to the Government of Bulgaria's EUR 8 billion Global Medium Term Note (GMTN) programme, the Finance Ministry said.

RATINGS RATIONALE

The Baa2 rating on Bulgaria's EUR 8 billion GMTN programme
mirrors the Government of Bulgaria's Baa2 (stable outlook)
issuer rating, which reflects its weak economic growth outlook
in an environment of moderate credit expansion and persistent
unemployment, challenges related to its banking system, and its
high fiscal strength, with low government debt and a track
record of maintaining fiscal reserves, Moody's said.

All notes issued under the programme will constitute direct,
general, unconditional, unsecured and unsubordinated
obligations. The terms of the notes contain a negative pledge
provision.

Bulgaria's economic performance has been weak since the
financial crisis, partly owing to muted demand for exports from
its main trade partners in Europe amid a low growth environment.

Other factors include a slowdown of investment and sluggish
consumption. Per-capita income is less than half of the euro
area average, but higher than the median average in Moody's
rated universe.

Bulgaria has a strong record of fiscal discipline. In 2013, it
recorded the second lowest debt-to-GDP in the EU, after Estonia
(A1 stable). A fiscal rule ensures deficits are limited and
government spending remains relatively low. Ongoing pension
reforms will help mitigate the increased cost pressures that
will arise from its aging population.

However, challenges in the banking system weigh on the
government's balance sheet following the collapse of Corporate
Commercial Bank, which led to a Lv 4.2 billion (EUR 2.1billion)
loss due to fraud and the subsequent revoking of the banking
license. In addition, political divisions within the current
ruling coalition may undermine effective governance, although
all major parties remain committed to prudent fiscal policies.
Bulgaria's institutions are weaker than the EU norm, but have
strengthened since the EU accession process.

What Could Change the Rating Up/Down

Positive pressure on Bulgaria's government bond rating and
therefore the GMTN programme rating could emerge should
Bulgaria's external vulnerabilities be reduced, either through
exchange rate mechanism (ERM II) entry or evidence of a decrease
 in the share of external debt and deposits denominated in
foreign currency. A structural reform process which that could
help spur economic growth permanently could also exert upward
rating pressure.

Downward rating pressure could result from a prolonged
period of weaker economic performance; government failure to
 reform banking supervision and regulation, inciting future
episodes of banking sector financial distress; and signs of
a reversal in the authorities' long-standing commitment to
containing budget deficits and the public debt stock.