S&P Global Ratings suggests that Bulgaria’s potential for investment-led growth is supported by its expected entry into the eurozone and the outcomes of its recent general election. However, the analysis highlights that weak financial management at the municipal level, including deficiencies in long-term strategic planning, remains a primary impediment to increased municipal investment activity. While low debt levels bolster the country’s overall credit ratings, this stability is partly attributed to a persistent lack of regional investment, which dampens economic growth.
Bulgarian local and regional government (LRG) debt, measured as a percentage of national GDP, stands at a low 0.8% as of the end of 2024, placing it below several Central and Eastern European peers. Furthermore, the outstanding stock of debt securities relative to total LRG debt is notably low at 1.6% in 2024. Eurozone membership is expected to enhance Bulgarian issuers’ access to euro-denominated commercial debt markets, while greater central government stability should promote more predictable budget adoption and timely transfers to municipalities.
State transfers account for nearly 80% of local government operating revenues, and debt repayments are capped at 15% of average own revenues plus subsidies over the previous three years. Despite these favorable macroeconomic and political conditions, general government investment spending over the last decade has trailed regional counterparts such as Poland and Romania. Compounding these issues are negative demographic trends and the regional dependency on fossil fuels.
Overall, the ratings assessment indicates that the outlook for municipal investments remains constrained, despite the positive momentum seen across the global economic landscape.
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