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Moody's Upgrades Bulgaria Debt as US Flirts With Default

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Moody’s upgraded Bulgaria’s sovereign debt rating from Baa3 to Baa2 on Friday, while the United States continues to live with the threat of downgrade as Washington bickers.

The Times of Malta reports that “effective fiscal consolidation supplemented by recent structural reforms, which are expected to maintain Bulgaria’s very low debt burden,” was the primary driver of the decision.

According to the Times, "Other factors included the central bank’s 'very effective' management of the country’s currency board regime that ties the lev to the euro at a fixed rate and the finance ministry’s 'tighter procedures for expenditure control.'"

Additionally, Moody's "could upgrade the rating even further when Bulgaria enters the ERM II two-year waiting room to join the eurozone, which had been a top priority of the current right-wing government when it took office two years ago."

Sofia news agency Novinite points out that Bulgaria now has "the highest rating of all the Balkan countries" save Slovenia, besting Greece, Romania, Macedonia, Turkey, Serbia, Montenegro, Albania, and Bosnia. Bulgaria's debt rating is also now even higher than those of Portugal, Greece, Ireland, Latvia, and Hungary -- euro member states, all.

While Bulgaria's "structural reforms" and "low debt burden" led to the Moody's upgrade, the threat of downgrade here in the US is really "due to political, not economic, reasons," as Joshua Keating of Foreign Policy explained recently, pointing out that "the global financial community isn't amused by the partisan bickering."

However, could Bulgaria's exuberance over shoring up its books lead to a new bout of irrationality?

After Bulgarian Deputy PM and Finance Minister Simeon Djankov described the Moody's upgrade as "a big success," he added:

"The Bulgarians must believe that we are out of the crisis and start spending instead of just saving.”
POSITION:  No positions in stocks mentioned.