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-Moody's hikes debt ratings on Bulgaria.

BANKING AND CREDIT NEWS-July 22, 2011--Moody's hikes debt ratings on Bulgaria(C)2011 M2 COMMUNICATIONS

22 July 2011 -- Moody's hiked Friday Bulgaria's debt ratings by a notch to Baa2, reflecting its successful fiscal consolidation, strengthening institutions and the ability of the government and the local banking system to withstand shocks.

The outlook is "stable".

The positive outcomes of the Bulgarian government's management of public finances, coupled with the introduction of structural reforms, will help the country retain its very low indebtedness, the agency said. According to Moody's, Bulgaria will beat the Maastricht deficit target this year and will be close to break-even in the coming years.

In the agency's view, Bulgaria's institutional framework has improved, given the progress achieved in guaranteeing the rule of law, the central's bank's effective management of the currency board and oversight of the banking system and the country's boosted ability to absorb EU funds.

Also, the government and banks have ample resources which can be utilised to cushion the impact of harsher-than-expected conditions. The agency noted that the banks would not need capital hikes or state backing to be able to deal with such emergencies.

Bulgaria's macroeconomic stability is underpinned by its currency's peg to the euro. Having experienced a milder slowdown relative to rating peers with currency boards, the country's economy is now on the rebound, driven mainly by external demand. While private investments will likely be depressed, favourable factors such as competitive wages and low taxes should ensure a certain level of such inflows, supplemented by EU-backed public investments, Moody's said.

If Bulgaria adopts the euro, which would translate into a reduction to external vulnerabilities, its rating may be upgraded further. But if there is significant erosion in external liquidity and/or the country's indebtedness spikes as a result of loose fiscal management, downward rating strain would build, the agency concluded.

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Publication:M2 Banking & Credit News (BCN)
Geographic Code:4EXBU
Date:Jul 22, 2011
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