Recent political developments in Bulgaria that have resulted in early elections being called need not threaten the sovereign's public finances, which are likely to remain a ratings strength, Fitch Ratings says. 

Political risk has increased with the resignation of former Prime Minister Boyko Borissov's government. This follows protests about corruption, high energy prices, and low living standards that have been characterised by some reports as "anti-austerity". Failure to form a new government means parliamentary elections will now be held on 12 May. 

There has been a broad political commitment to fiscal prudence in recent years. Spending controls allowed Bulgaria to exit the EU's excessive deficit procedures in June 2012. Elections had been due in July 2013 and a political consensus on adhering to European Union guidance on the fiscal framework was one of the assumptions underpinning our affirmation of Bulgaria's 'BBB-'/Stable rating last summer. 

This assumption still holds. The early departure of the Borissov government has increased political uncertainty. The final outcome of the May election could depend on subsequent coalition talks involving smaller parties. But there is no new, explicitly anti-consolidation, political grouping or movement. 

President Rosen Plevneliev said earlier this month that Bulgaria remained committed to fiscal discipline and that fiscal targets for 2013 will be adhered to. Concerns about corruption and uneven income distribution and the exclusion of large parts of the population from economic well-being more than fiscal consolidation per se seem to have driven popular protests, and this is reflected in pre-election rhetoric. 

Since our affirmation, Bulgaria has introduced a public finance law that incorporates the fiscal compact's structural budget balance rule. Bulgaria's currency board arrangement constrains fiscal policy and ensures there is a significant fiscal reserve. The political commitment to maintaining the regime is broad-based and strong. It is rooted in memories of the 1996-1997 financial crisis, when inflation rocketed and the lev collapsed, and the acceptance across the mainstream political spectrum that the currency board system helped stabilize the economy. 

The healthy state of Bulgaria's public finances before the financial crisis, its low public debt, the success of its recent consolidation efforts (according to the Ministry of Finance the general government budget deficit was just 0.5% in 2012 in cash terms), even in the face of weak domestic demand, gives the sovereign some fiscal space to accommodate spending to alleviate social pressures. 

The principal constraints on the sovereign rating are low GDP per capita, and low trend GDP growth. We forecast real GDP growth of 1.9% in 2013. 

The Bulgarian parliament held its final session before the May elections this week, following the appointment of a caretaker government with Marin Raykov, a diplomat and former deputy foreign minister, as prime minister.  Source; Fitch