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Bulgaria's outlook raised to positive by Moody's

The outlook on Bulgaria's long-term foreign and local currency bond ratings was raised to positive from stable by Moody's Investors Service.

The ratings company cited the government's strong fiscal position, robust economic growth and expected membership in the European Union's exchange-rate mechanism, the required two-year test of currency stability before adopting the euro. Bulgaria's $24 billion economy grew 6.7% in the Q3 before the country joined the EU on January 1. The overall economy grew by about 6% last year, driven by investment in factories, equipment and property development and „high rates of investment should allow the economy to continue to grow at the current trend over the medium term,” Moody's said in a statement. The change indicates that Moody's is more likely to increase the sovereign rating than leave it unchanged. The outlooks on Bulgaria's foreign currency bond ceiling rated A1, foreign currency deposit ceiling rated Baa3 and local currency deposit ceiling rated Baa1, were changed to positive from stable, Moody's said. Moody's has been rated Baa3, the company's lowest investment grade rating, since March 1, 2006, putting it level with Croatia and Armenia.

„Bulgaria currently meets the deficit, debt and interest rate of Maastricht criteria for euro adoption but does not meet the inflation criterion,” said Kenneth Orchard, Moody's lead analyst for Bulgaria. „Although inflation is expected to decline this year from elevated rates, it is unlikely to fall below the Maastricht criterion within the next three to four years.” Bulgaria had the highest inflation in the EU in January of 7.2%. The country had a budget surplus of 3.7% of GDP, which is the largest surplus in any EU country, Moody's said. State foreign debt declined to 24% of GDP now from 64% of GDP in 2001, the rating company said. Moody's warned of risks associated with Bulgaria's widening current account deficit, which reached 16% of GDP last year and is fully covered by foreign investment. High rates of investment and borrowing have expanded the country's commercial foreign debt, the agency said. Banks, corporations and households have all been borrowing abroad to fund domestic consumption and investment, and most of them are in debt for the first time. „It remains to be seen how these borrowers will cope in an economic downturn,” said Orchard. (Bloomberg)