Political instability in Bulgaria will delay reforms to unlock the next funding under the country’s National Recovery and Resilience Plan (NRRP), Fitch Ratings said in a statement on January 25.
The country will hold in April its fifth general election within two years, which means that there will be no functioning parliament for two months and no legislation changes can be adopted in that time.
Bulgaria received the first payment of €1.37bn under the NRRP in mid-December 2022, but has to adopt 22 legislation changes to be able to receive the next tranche.
“According to the European Commission’s timeline, the next RRF payment should be requested in 1Q23. However, the lack of functioning government and new elections could delay further disbursements, despite a broad political willingness to continue implementing the agreed reforms,” Fitch noted.
It added that real GDP growth is expected to slow to 1.45 in 2023 from an estimated 3.5% in 2022 due to unfavourable carry-over effects and slowing private and public consumption.
Meanwhile, Bulgaria is expected to request in the first quarter of 2023 the assessment of its progress against the convergence criteria for eurozone entry and Fitch expects that the country could meet the legal requirements for accession.
However, meeting the price-stability criterion, which was not achieved in 2022, will again be the key obstacle as the country’s inflation in 2022 was well above the rate of the three best-performing EU member states. That trend is expected to continue through 2023 and 2024.
“Unlike Croatia, which joined the eurozone on January 1 this year, Bulgaria is too far from the target to benefit from the removal of outliers,” Fitch noted.
It added that this is increasing the risks of a delay in euro adoption beyond 2024 despite Sofia’s commitment to push for eurozone entry on January 1 next year.