Bulgaria elections raise economic uncertainty

Political uncertainty has increased in Bulgaria after the collapse of the four-party coalition government under the leader of centre-right ‘We Continue the Change’ (PP) party, Prime Minister Kiril Petkov.

Bulgaria is now heading to new elections following PP’s failed attempt to garner support in parliament to form a coalition government.

The four-party coalition government collapsed in June after losing a no-confidence vote amid disagreements over budget spending and a plan to lift Bulgaria’s veto on opening EU accession talks with North Macedonia.

Centre-right GERB and socialist BSP parties, which came second and third in the November 2021 election, returned the mandate to form a new government bringing Bulgaria to its fourth general election since April 2021, scheduled for 2 October.

In DBRS Morningstar’s view, the renewed uncertainty could negatively impact the progress of reform legislation and investments under the NGEU, which could result in delays in the absorption of EU funds, posing a downside risk to the outlook.

The new elections come in a period of increased uncertainty over Bulgaria’s economic outlook.

The Ukraine conflict’s implications have increased the Bulgarian economy’s downside risks.

“The outcome of the next elections and the timing of the formation of the new government with a clear mandate will be crucial for the continuation of the reform agenda that paves the way for the euro adoption,” said Spyridoula Tzima, Assistant Vice President of the Sovereign Group at DBRS Morningstar.

“DBRS Morningstar notes that continued political standstill could lead to further delays in the absorption of EU funds and in the implementation of reforms necessary for the euro accession process and for raising Bulgaria’s growth potential.”