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Sofia Outlook Revised To Positive on Improved Growth Prospects; ‘BBB’ Rating Affirmed

S&P Global Ratings revised to positive from stable its outlook on the long-term issuer credit rating on Sofia on February 16. “We affirmed our ‘BBB’ long-term issuer credit rating on the city,” S&P Global Ratings stated on their website.
“The positive outlook reflects the increased likelihood that Sofia’s economic growth may strengthen on the back of Bulgaria’s accession to the eurozone,” the American credit rating agency added. It noted that the accession might support tax-revenue growth and wealth levels in Sofia. “We also think adopting the euro could broaden the city’s funding sources and enhance its capital access,” S&P Global Ratings underlined.
Sofia Mayor Vassil Terziev commented Monday that Sofia’s potential for development is large, and it is good that it is appreciated at an international level.  Terziev and Deputy Mayor for Finance Ivan Vasilev are working on an analysis of the Bulgarian capital’s financial performance, management practices and efficiency of commercial companies. “In the coming weeks we will share the result and our recommendations with the Sofia Municipal Council, the Mayor noted.
Strong economic fundamentals in the capital city, alongside conservative financial planning, will underpin solid operating performance and contained deficits after capital accounts, despite sizable infrastructure investments, S&P Global Ratings pointed out.
“We expect near-term policy continuity following the change of government after the local election in November 2023, where the incumbent administration lost power after nearly two decades in office,” the agency said.
It also shared upside and downside scenarios for the Bulgarian capital. The outlook on Sofia’s long-term issuer credit rating could be upgraded over the next 24 months if Bulgaria’s successful accession to the eurozone gives way to pronounced economic and fiscal benefits for Sofia, such as strong tax-revenue growth or access to more diversified funding. An upgrade would be contingent on a similar action on the sovereign. If Bulgaria’s eurozone accession bears only limited effects for Sofia, the outlook could be revised to stable. A stable outlook might also stem from weaker management practices, such as those pertaining to the city’s companies, that resulted in increased risks.
“Funding for EU-supported projects will be lower than in previous years, as the program cycle comes to an end, although we forecast continued investments in local infrastructure requiring debt financing. However, we think the city will maintain a low debt burden and ample liquidity reserves, counterbalancing the limited predictability of the institutional framework under which Bulgarian local and regional governments operate,” S&P Global Ratings said.