Bulgaria: Risk Assessment

Country Risk Rating

B Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable.

Business Climate Rating

A4 The business environment is acceptable. Corporate financial information is sometimes neither readily available nor sufficiently reliable. Debt collection is not always efficient and the institutional framework has shortcomings. Intercompany transactions may thus run into appreciable difficulties in the acceptable but occasionally unstable environments rated A4.


  • Fixed exchange rate against the euro (1 euro = 1.96 lev)
  • Diversified production base
  • Low production costs
  • Low dependence on external energy
  • Current account surplus and low public debt
  • Many tourism assets


  • Governmental instability and fragmentation of the political landscape
  • Corruption and organized crime
  • Inefficient public administration and judicial systems
  • Inadequate supervision of the banking sector
  • Lack of skilled labor force
  • Population relatively poor (per capita GDP = 45% of EU average) and in decline 

Current Trends

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2016, confirming the return to moderate growth

The return to moderate growth should be confirmed in 2016. With the restoration of government stability and consolidation of the banking sector, confidence is increasing. However, traces of excesses, which culminated in the bankruptcy of the country's fourth-largest bank in 2014, will still be present. The desire to pursue deleveraging will urge households and businesses to exercise caution. Investment should be the driving force, despite the slowdown in public investment linked to the transition between two European funding programs. The production capacity utilization rates are rising and credit conditions are favorable. Exports, diversified with cereals, sunflower seed, tobacco, clothing, medicines, machinery, copper, steel, electricity and refined oil, are expected to post continued moderate growth. On the one hand, they should benefit from the good performance of the German and Turkish markets and from increased Italian, Romanian and French demand; on the other hand, they are suffering from the poor performance of the Greek economy. Household consumption could remain sluggish due to the persistent high unemployment, especially long-term. The resulting moderation in imports will help to maintain a positive trade contribution.

No fiscal emergency

Fiscal consolidation could pause in 2016. Boiko Borisov, the present Prime Minister had to step down in February 2013 on popular discontent background caused by the increase in electricity prices, making way for a government that also did a brief stay. Nevertheless, the public deficit should remain below the 3% mark. Despite an underground economy estimated at 30% of the total economy, tax collection continues to improve. The decline in the deficit is mainly explained by one-off privatization revenues. Privatization, reform of the electricity market and hospital sector restructuring could cause a decrease in losses of public enterprises (electricity, railways, post, water), allowing for an increase in public spending. Despite the cost of the bank bailout of 2014, the public debt keeps a low weight.

Balanced external accounts

Despite the good price competitiveness of its exports, the country registered a trade deficit representing 4.2% of GDP in 2015. This is down to its energy dependence: 35% of its needs are covered externally, of which 11% by Russia (which supplies all the gas). This deficit is more than balanced by a trade in services surplus (5.7% of GDP), together with tourism and road transport, despite the disaffection of Russian and Greek visitors for the beaches of the Black Sea. Meanwhile, dividend repatriation by foreign investors and interest payments on external debt (3.8% of GDP together) are nearly matched by remittances from emigrants, many of whom left for the west after the borders were opened. The slight current account surplus (1.2% of GDP), European funds (3.2%) and foreign direct investment (3.4%) allow both to top up the foreign exchange reserves whose opulence (over 9 months of imports) ensures the credibility of the lev's peg to the euro since 1997 and serve external debt still representing (as of end-January 2016) 73% of GDP (27% for inter-company loans, 25% for non-financial companies, 12% for the state and 8% for banks) despite the ongoing private sector deleveraging.

Reforms delayed by political alternation and fragmentation

Following the October 2014 elections, Boiko Borisov, already Prime Minister from 2009 to 2013, heads a center-right government, backed by his party, Citizens for the European Development of Bulgaria (GERB), the Reformist Bloc, Alternative for Bulgarian Renaissance (although, center-left), and the Patriotic Front. The coalition has 137 seats out of 240, which should allow him to implement reforms. Reforms to the judicial system and banking supervision should be adopted by the end of 2016. They are intended, respectively, to further the independence of the judiciary from business and political circles, and prevent another banking scandal like that of 2014. They form part of the program to combat corruption and organized crime. However, the coalition is not a monolith. The last two elections were brought forward following the break-up of the governing coalition. The changeover at each election, the fragmentation of the political landscape and the close relationship between politics and business serve to slow the pace of reform. Unlike the previous and transitory government formed by the Socialist Party and the Turkish minority party, the current government is affirming its European roots. However, cultural (Orthodox Christianity), economic (energy) and financial (through the banks) ties with Russia will remain.


Coface (09/2016)