On the eve of Bulgaria's eurobond issue, Standard & Poor's has upgraded the country's credit rating, leading to improved confidence in the country and widespread interest in other debt instruments.

The rating agency upgraded Bulgaria's long-term foreign currency sovereign credit rating from B+ to BB-. The news of the S&P rating upgrade pushed Bulgarian Brady bonds up last Thursday by two to three per cent to record-high levels; the DISCs were at $0.835, the IABs at $0.83 and the FLIRBs at $0.85, the Finance Ministry announced.

The parliamentary budgetary policy commission chairman Ivan Iskrov noted that this was a record high for Brady bonds in the period since 1990 when foreign debt payments were suspended. "This reduces the country risk and boosts investor confidence," he said, recalling that Bulgaria has been absent from the international financial markets for a long time.

"S&P is an agency focused on the future that appreciates the stance of the new government in contrast to Fitch IBCA and Moody's," said deputy finance minister Krassimir Katev.

Bulgaria's long-term local currency sovereign credit rating was upgraded to BB from BB-, and the foreign currency sovereign credit rating from B+ to BB-. Standard & Poor's also confirmed the previous short-term local and foreign currency sovereign credit ratings as B with a positive outlook.

According to Standard and Poor's, the political commitment of the government to pursue sensible fiscal and financial policy has so far been demonstrated by its determination to adopt a strict budget for 2001. In addition, its strong cooperation with the IMF and the promise to step up integration with the EU are guarantees that Bulgaria will continue to implement the remaining structural reforms. "Possible membership in NATO will confirm the country's political integration," the rating agency said.

S&P pointed out that the increase of the local currency sovereign credit rating reflects the government's tax policies. However, its influence in the monetary sphere is restricted due to the currency board arrangement introduced in 1997.

Standard & Poor's also upgraded Sofia Municipality's foreign currency long-term rating of unsecured debt from B+ to BB-. Sofia's local currency long-term rating of unsecured debt was raised from BB- to BB, the mayor's press office announced last Friday.

The increase of Sofia's rating reflects the advance in implementing the financial and economic reforms in Bulgaria and encourages the city's development as the country's commercial, financial and cultural hub, S&P said in a fax sent to Sofia Mayor Stefan Sofianski.

The rating agency said that the stable outlook is based on the expectation that Sofia will continue to take advantage of the high levels of incomes, employment and investment compared with elsewhere in the country. Public spending and especially investment reserves should be managed with caution so as to maintain low levels of indebtedness and stable financial balances, the fax said.

According to Sofianski, the city is the only institution in Bulgaria whose credit rating increased. "This means good credibility and stability for the capital and opportunities for better loan conditions," he said.