November 30 (BTA) - S&P Global Ratings has re-affirmed its long- and short-term foreign and local currency sovereign credit ratings on Bulgaria at BBB/A-2, and kept a stable outlook, the Bulgarian Finance Ministry said in a press release on Tuesday.

The economic effects of the pandemic appear to have been manageable in Bulgaria, despite a significant health impact, S&P Global Ratings is quoted as saying. Domestic demand, particularly private consumption, has recovered strongly and the increased absorption of EU funds will lift the medium-term growth outlook. Under the previous and current EU Multiannual Financing Framework (EU MFF) and the Next Generation EU (NGEU) instrument, the ratings agency estimates that Bulgaria is eligible for EU grants equivalent to about 40 per cent of 2021 GDP.

Sizable support measures during the pandemic led to significant fiscal deficits in 2020, with similar deficits forecast for 2021.

Although some measures will continue into 2022, deficits are expected to narrow from next year. Special note is made of Bulgaria's established record of fiscal prudence under several administrations. Although fiscal loosening has increased public leverage, BulgariaÒs net government debt levels remain modest at around 20 per cent of GDP, whereas sovereign funding costs have reduced to record-lows.

The results of the recent elections, the third one this year, provide the opportunity to form a government consisting of newly established parties and the previous opposition, provided they manage to agree on a common agenda.

In line with global trends, inflation in Bulgaria has increased recently, due to a combination of rising food and energy prices, as well as strengthening domestic demand weighing on core inflation. Price increases are expected to reduce in the second half 2022.

External risks appear manageable after several years of external net deleveraging, thanks to recurring current and capital account surpluses, which are expected to continue.

The lev was included in the ERM II and Bulgaria joined the Banking Union in 2020. Although the current currency board provides an important anchor of economic stability, our ratings also factor in the country's limited monetary policy flexibility under this arrangement.

The stable outlook indicates that S&P Global Ratings expects Bulgaria's economic recovery to progress over the next two years, backed by further absorption of additional EU funds. Although several fiscal support measures will extend into 2022, the fiscal balances are expected to narrow over the next years, which will keep public debt low. The stable outlook also signifies that the ratings agency anticipates that the economy will not incur any external or financial sector imbalance.