The economy continues to expand but structural challenges remain. Bulgaria's institutions are developing, and we consider its EU membership a credit strength. The near-term growth outlook remains favorable, despite high emigration and worsening labor shortages. However, over the longer term, structural constraints, for example the gap between skills in demand and those supplied by the educational system, will drag on potential growth. Bulgaria's fiscal and external balance sheets remain strong, and it is progressing toward joining the European Exchange Rate Mechanism II (ERM II). Bulgaria has a long track record of fiscal prudence, in keeping with its rigid monetary arrangement. Bulgaria aims to join ERM II and the banking union by July 2019. Levels of public and external debt remain
