Rating action

Scope Ratings GmbH (Scope) has today upgraded the Republic of Bulgaria’s (Bulgaria) long-term issuer and senior unsecured debt ratings to A- from BBB+ in local and foreign currency, and revised the Outlooks to Stable, from Positive. The short-term issuer ratings have been upgraded to S-1 from S-2 in both local and foreign currency, and the Outlooks revised to Stable, from Positive.

The rating upgrade reflects Bulgaria’s formalised entry into the euro area, with adoption of the euro as its official currency effective 1 January 2026. This transition carries multiple credit-positive implications, including the use of a global reserve currency, enhanced governance, and greater flexibility in monetary policy. Replacing the Bulgarian lev with the euro will effectively eliminate foreign-exchange risk across the economy. Bulgaria’s readiness to join the euro area furthermore highlights the authorities’ strong commitment to structural reform and reflects broad-based political support for Bulgaria’s accession across Europe and the euro area.

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Key rating drivers

The upgrade of Bulgaria’s ratings to A-/Stable reflects the credit-positive implications of entering the euro area and adopting the euro, a global reserve currency, as its local currency from 1 January 2026. Following the positive assessment of Bulgaria’s fulfilment of convergence criteria per the June 2025 Convergence Report by the European Commission (EC) and the June 2025 Convergence Report of the ECB, the EC issued a proposal for a Council decision on the adoption by Bulgaria of the euro^1,2. This proposal was formally endorsed by the European Council on 20 June 2025. On 8 July 2025, the ECOFIN adopted the relevant legal acts to formalise Bulgaria’s euro area membership for 2026³, removing any uncertainty regarding the timetable of Bulgaria’s accession. As such, it forms the basis of this rating action, which incorporates a forward-looking view of Bulgaria’s credit fundamentals as a euro area member state from 2026.

Euro area accession will strengthen Bulgaria’s credit profile via improvements across multiple rating-relevant areas, including via eliminating foreign-exchange risk in the economy, improving monetary policy flexibility, and enhancing access to deep euro area capital markets. Accession will furthermore provide domestic banks with access to ECB facilities and the sovereign access to the European Stability Mechanism (AAA/Stable), supporting financial stability and lowering financing costs for both public and private sectors.

Scope expects Bulgaria’s medium-term economic outlook to be supported by continued EU fund inflows and euro area membership. Real GDP is projected to grow by 2.6% in 2025 and 2.9% in 2026, after 2.8% in 2024. The growth trajectory is underpinned by substantial EU funding, equivalent to about 16% of 2024 GDP, including EUR 5.7bn under the Recovery and Resilience Facility (RRF) and EUR 10.9bn in cohesion policy allocations under the 2021–2027 Multiannual Financial Framework. Over the medium term, euro area accession is also expected to bolster foreign direct investment and deepen trade integration with other euro area countries, further reinforcing a favourable macro-economic outlook.

The June 2025 Convergence Report of the European Commission and the June 2025 Convergence Report of the European Central Bank assessed positively Bulgaria’s record of meeting the necessary convergence criteria as a prerequisite to joining the euro.

First, Bulgaria has met the exchange rate convergence criterion after the minimum two-year phase under the European Exchange Rate Mechanism (ERM II), during which the lev was allowed to fluctuate versus the euro within a standard fluctuation band of ±15%. Bulgaria’s record of a credible fixed exchange rate of the lev to the euro and the Bulgarian National Bank’s ample reserves underpin the credibility of the exchange rate during the current period of participation in the ERM II, as the lev did not exhibit any deviation from the central rate. Bulgaria’s foreign exchange reserves stood at EUR 40.6bn as of end-May 2025, up from EUR 36.7bn as of May 2024.

Second, Bulgaria has also met the public finance convergence criterion as it is not subject to an Excessive Deficit Procedure. Bulgaria’s general government deficit widened to 3.0% of GDP in 2024, from 2.0% in the previous year, still in line with the 3% Maastricht threshold. This deterioration was largely due to a one-off statistical adjustment due to the recording of settled liabilities for previous years’ infrastructure works. Scope expects the deficit to moderate somewhat and to stabilize at 2.9% of GDP over 2025-26. Still, recurrent episodes of political instability add uncertainty to the fiscal outlook. The debt-to-GDP ratio should remain on a gradual rising trend over coming years, increasing to 27.8% by YE 2025, from 23.4% as of YE 2024, before rising to about 34% by 2030 – thus remaining among the lowest in the EU.

Third, Bulgaria meets the criterion for interest rate convergence. The long-term interest rate on a single long-term bond (with a residual maturity of 6.55 years) averaged 3.9% in the 12 months to April 2025, well below a reference value of 5.1%. This criterion stipulates that an acceding member’s long-term interest rate should not be more than two percentage points above that of the three best-performing member states in terms of price stability. Overall, Bulgaria benefits from very low interest expenses, with general government interest expenditure (in net terms) averaging just 0.1% of GDP over 2022-24. Scope expects this to increase only moderately to around 0.6% of GDP over 2025-30.

Finally, Bulgaria has also fulfilled the price stability convergence criterion, which had proved to be the most challenging to meet in recent years, amid persistent inflationary pressures. Over the 12 months to April 2025, Bulgaria’s rate of HICP inflation averaged 2.7%, just below the reference value of 2.8%. The price stability convergence criterion stipulated that Bulgaria’s 12-month average inflation rate could not be more than 1.5 percentage points above that of the three member states with the lowest inflation rate. The June 2025 Convergence Report of the European Commission and the June 2025 Report of the European Central Bank confirmed Bulgaria’s fulfilment of the price stability criterion without the exclusion of any outliers in the reference rate calculation – as had been the case for Croatia’s (A-/Stable) accession in 2022.

Rating challenges: political and institutional challenges; adverse demographic pressures; and vulnerability to shocks due to small economic size and moderate wealth levels

First, Bulgaria’s persistent political instability remains a key rating constraint, as it weighs on policy continuity and long-term economic planning. Frequent government changes have also delayed the country’s euro area accession. Since 2021, Bulgaria has held seven parliamentary elections, including three in that year alone, reflecting a volatile political landscape. Extended periods of caretaker governments have hampered policy implementation, particularly in areas requiring sustained policy commitment such as institutional reform, anti-corruption efforts, and business climate improvements.

A new coalition government, led by Prime Minister Rosen Zhelyazkov (GERB), was approved in January 2025 after a protracted and contentious government-formation process. The coalition controls just 125 out of 240 parliamentary seats and relies on the conditional support of the Alliance for Rights and Freedoms (APS). Political fragmentation has also impeded the execution of Bulgaria’s Recovery and Resilience Plan. As of June 2025, the country has absorbed only 24.1% of its allocated RRF funds, with just 6.85% of milestones and targets fulfilled - among the lowest rates in the EU⁴.

Second, adverse demographics drag the growth outlook. After shrinking by 19% over 2011-21, the working-age population is forecast to remain on a steady declining trajectory, with an average decline of 1.0% per year over 2025-30⁵. While Bulgaria’s medium-term potential growth, which Scope estimates at around 2.75% per year, remains comparatively robust relative to European peers, an acceleration in productivity gains is required to foster a swift convergence towards euro area average incomes.

Finally, Bulgaria’s low wealth levels with GDP per capita of EUR 16,100 in 2024, the lowest level in the EU, modest economic size with nominal GDP of EUR 104bn in 2024 and trade openness (export and import sectors each accounting for around 55% of GDP) make the economy vulnerable to idiosyncratic and global shocks. 

Rating-change drivers

The Stable Outlook represents the opinion that risks to the ratings are balanced over the next 12 to 18 months.

The upside scenarios for the ratings and Outlooks are (individually or collectively):

1. sustained economic growth and economic diversification drive convergence with EU per-capita incomes; and/or
    
2. progress in addressing institutional challenges, including the rule of law and corruption.

Conversely, the downside scenarios for the ratings and Outlooks are (individually or collectively):

1. the fiscal outlook weakens, resulting in larger-than-expected fiscal deficits and continued rising government debt;
    
2. the economic outlook weakens, for example, due to a domestic or external economic shock, lowering economic growth and/or the country’s medium-term growth potential; and/or
    
3. institutional risks or political instability increases, raising the materiality of governance concerns and/or challenging European fund inflows.

Sovereign and Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘a-’ for Bulgaria. Under the methodology, the first indicative rating next receives: 1) no positive adjustment from the methodological reserve-currency adjustment; and 2) no negative adjustment from the model’s political-risk quantitative adjustment. On such basis, the final SQM quantitative rating is ‘a-’ and next reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of the sovereign’s qualitative credit strengths or weaknesses compared against those of an SQM-assigned peer group of sovereign states.

Scope identified the following QS relative credit strength for Bulgaria: i) external debt structure. Conversely, the following credit weaknesses have been identified in the QS: i) macro-economic stability and sustainability; ii) social factors; and iii) governance factors. On aggregate, the QS generates a one-notch negative adjustment for Bulgaria’s credit ratings.

In addition, a one-notch positive adjustment was made at the rating committee level to account for Scope’s expectation that Bulgaria will be issuing its local-currency debt in euros from 1 January 2026 and therefore benefit from a one-notch reserve currency adjustment to its indicative ratings as per Scope’s sovereign ratings methodology.

These adjustments conclude in final A- long-term ratings on Bulgaria.

A rating committee has discussed and confirmed these results.

Environment, social and governance (ESG) factors

Scope explicitly factors in ESG issues in its ratings processes via the sovereign-rating methodology’s stand-alone ESG sovereign-risk pillar, which holds a significant 25% weighting under the quantitative model (SQM) and 20% weight under the methodological qualitative overlay (QS).

Environmental factors are explicitly considered in the ratings process via the environmental sub-category under the ESG sovereign risk pillar. Here, the SQM considers Bulgaria’s comparatively high level of carbon emissions per unit of GDP and greenhouse gas emissions per capita. However, risk to Bulgaria’s sovereign ratings from exposure to natural disasters is moderate as evaluated via the ND-GAIN Index, although climate-change-related weather events such as droughts and floods pose risks. Finally, Bulgaria has strong scores compared with peers on the ecological footprint of its consumption compared with available biocapacity. Bulgaria’s economy is the EU’s most energy-intensive and its energy mix is relatively reliant on fossil fuels (63%). In addition to risks captured under the SQM, environmental factors are also considered under the QS, under which Scope has assigned an evaluation of ‘neutral’ against Bulgaria’s sovereign peer group.

Socially-related factors are captured under Scope’s sovereign methodology in the SQM via the accounting of Bulgaria’s average labour force participation (73% in Q1 2025), but comparatively high level of income inequality. Bulgaria’s old-age dependency ratio compares weakly against that of sovereign peers. While robust economic growth since Bulgaria’s 2007 accession to the EU has yielded material improvements in income levels and labour market outcomes, further gains are required to address some lingering socio-economic vulnerabilities, including a high at-risk-of-poverty rate (30.3% as of 2024, 10pps above the EU average). Social factors are also considered in the QS evaluation with an assessment of ‘weak’ on ‘Social factors’.

Under governance-related factors, Bulgaria has relatively low scores on a composite index of five World Bank Worldwide Governance Indicators. Governance considerations include a high turnover of governments in recent years, with seven elections between 2021-24. Frequent government turnover has hampered reform momentum crucial for tackling medium- to long-term challenges and in advancing euro area accession. Scope evaluates ‘Governance factors’ in the QS as ‘weak’ compared with Bulgaria’s indicative sovereign peer group.

Rating committee
The main points discussed by the rating committee were: i) euro area accession; ii) fiscal fundamentals and debt trajectory; iii) macroeconomic sustainability and growth performance; iv) financial stability risks; v) EU funds and absorption of EU resources; vi) external sector dynamics; and vii) governance factors.

Rating driver references
1. European Commission, June 2025 - Bulgaria meets criteria to join the euro area on 1 January 2026
2. European Central Bank, June 2025 – Convergence Report, Bulgaria
3. European Council, July 2025 - Council decision on the adoption of the euro by Bulgaria
4. European Commission, 2024 Ageing Report
5. Recovery and Resilience Dialogue with the European Commission, June 2025

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and/or Outlooks is (Sovereign Quantitative Model Version 4.0), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation     YES
With access to internal documents                                     NO
With access to management                                             YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.
 
Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Brian Marly, Senior Analyst
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings in January 2003. The Ratings/Outlooks were last updated on 2 August 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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