The potential adoption of the ordinary currency in Bulgaria will support potential growth of about 2.75% per year and accelerate the integration of the EU average living standards.
Bulgaria formally requested the European Commission (EC) and the European Central Bank (ECB) to assess the country's preparations for joining the economic and monetary union on February 25. This is a crucial step to put the decision on joining in Europe, carefully alienating the decision from the ongoing domestic political divisions on the subject.
Scope Rating (Scope) It is expected that the Ecofin Council will approve Bulgaria's accession by July 8 after the release of its special convergence report. The latest feedback from European institutions favors Bulgaria's entry. If successful, this will expand to 21 member states after Croatia (2023), Lithuania (2015) and Latvia (2014).
Bulgaria's efforts to control inflation have proven crucial to facilitate its bid to join a single currency. Price stability has proven to be the most challenging European core convergence standards in recent years. The unified annual inflation rate fell from 4.0% in March to 2.8% in April. The 12-month 12-month time (convergence standard) remained 2.7% in April, which matched the average of the three Euro Regional Member States with the lowest inflation rates (France, Cyprus, Cyprus and Luxembourg in April) and the average of 2.8% (total 2.8% (total 2.8%) of 1.5pp.Figure 1).
Importantly, Bulgaria is currently in compliance with inflation standards even if it does not exclude anomalies in the calculations of EC and ECB, a factor that played a role in Croatia’s approval in 2022. Bulgaria usually has relatively modest inflation, a trend that may make itself more focused. The scope forecasts that consumer price inflation averages 3.4% this year, and then drops to 1.6% next year.
Figure 1: Bulgaria meets the final euro fusion standard for inflation
Consistent inflation, annual change, %
The main risk of Bulgaria's entry remains the domestic political division. In the seven general elections held since 2021, people reflected a sharp division between those who are more deeply integrated within the EU and those who are more deeply integrated. This division hurt government reforms that adopted the euro, resulting in years of delays.
The division of pace of joining continues, while the pro-Russian opposition group Vazrazhdane (Revival) calls for a referendum on the adoption of the euro to seize the public's uneasiness with higher inflation if Bulgaria joins the euro and the euro challenge facing the euro.
Pro-Russian President Rumen Radev supports the idea of holding a referendum, but in parliament, most pro-European parties reject the right to the proposal. Radev turned the matter to the Constitutional Court, but it is unlikely to undermine the European timeline.
Another issue with joining is the government's fiscal position. The country has a moderate budget deficit and relatively low public debt. However, the recent increase in state spending on salary, pensions, defenses and measures to alleviate the cost of living crisis has increased this record.
However, due to strong revenue growth, the government deficit remained unchanged from last year’s GDP accounted for 3.0% of GDP last year (Figure 2). Authorities have pledged a budget deficit this year to account for 3.0% of GDP. General government debt will rise steadily, with 34% of GDP lowering from 24% by the end of 2024 by 2024, although it remains the lowest in the EU.
The EC conducted a favorable assessment of Bulgaria's 2025-2028 medium-term fiscal structure plan earlier last month, a positive step adopted by the euro, which shows that public finance remains stable and sustainable.
Figure 2: Fiscal indicators remain prestige even if the deficit is larger and debt is increasing,
% of GDP
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Dennis Shen He is the Chairman of the Macroeconomic Committee and the Chief Global Economist of the Scope Group. The rating agency's Macroeconomic Commission summarizes the company's credit opinions into multiple issuance categories: sovereignty and public sector, financial institutions, companies, structured finance and project financing. Brian Marlysenior analysts at Scope Sovereign Ratings and senior analysts at Bulgaria contributed to writing this review.
This article was originally published on FX Empire