 BUILDING BULGARIA'S INTERNATIONAL CREDIBILITY
The evident "international confidence" in Bulgaria seems to be indicative also of the fact that despite its comprehensive impact a currency board arrangement is nothing but an instrument that could be used effectively within the framework of an economic policy and strategy towards a sustainable growth. Bulgaria's increased credit ratings assigned by several rating agencies after an indecisive start of the incumbent Bulgarian government were met as a proof that this country has managed to attain a balanced position where the executive could have only a slight impact over an irreversible trend of economic restructuring.
For all its restrictive effects, the currency board in Bulgaria restored the stability of the financial and the banking system and is on the verge of causing a qualitative jump in this sector. One of the major challenges to the current policy of the banks in Bulgaria is aimed at the excessively restrictive and conservative crediting terms. Various estimates place the volume of assets held by Bulgarian persons and entities in short-term deposits abroad anywhere between USD 2.5 and USD 500 million, with up to USD 1 billion held in deposit boxes. At the same time long-term money has started to gain ground in Bulgaria. The first 8 pension funds emerged in 2001, which are very small by any standard, have started to accumulate money. At the moment they accumulate about USD 100 million, while the estimates for 2004 are for a growth to USD 1 billion and for 2006 - $2 billion. This represents an obvious challenge for the market by its potential to have these assets channeled into the Bulgarian economy, Kamen Kolchev, CEO of one of the largest local financial brokerage companies, Elana said.
Viable companies have already started to look for alternative ways of financing, which gave an impetus to the fixed-income market. There are at least 10 successful corporate bond issues, and banks have started to market their mortgage bonds issues as well. This is indicative of the emergence of a bonds market that is growing and becoming attractive. "In 2002 this will be an interesting market to look at because of the low country risk and the good credit rating combined with zero currency risk due to the currency board. The yields are much higher than the European ones - the yields of Bulgarian bonds are between 7% and 10% per year and brokers expect the volumes to keep growing, opening new investment opportunities", the Elana source said.
The capital market, which is the other side of the
financial coin, is well structured in Bulgaria,
perhaps better than in many other countries in Central
and East Europe. But despite the existence of a
very well technically organized stock exchange and
clearing system the stock market has failed to lift
off. The backbone is in place but the stocks are
still missing. |
The reason for the weakness of the Bulgarian capital market may be in the corporate governance problem. Bulgarian public companies have become public by law, not by raising capital through the market, which strips them of the experience and the understanding of the incentives from being public, while the state is still generally reluctant to float its stock, expecting a higher revenue from privatization.
The incumbent government's election platform included a pledge to bring the budget deficit to zero. However, "for 2002, we shall not be able to achieve a zero budget deficit, as we introduced some ambitious tax reforms that will actually lead to some loss of revenue. We are already targeting the 2003 budget, and will start active preparations by mid 2002. To ensure that the budget is balanced we will both increase revenue and collection of taxes without increasing the present rates. Specific efforts will be dedicated to streamlining the customs and tax administrations in order to both raise collection and cut on their expenses", Finance Minister Milen Veltchev said.
For 2001, Bulgaria is expected to report a 4.9% growth of its gross domestic products (GDP). Surprisingly, 2001 turned out to be better than anyone expected. The growth of industrial output in 2001 is expected to top 10%. The private sector alone reports an 8% growth, while state enterprises closed the financial year with a BGN 130 million loss.
The last general elections in the summer of 2001 brought about an unexpected change in government. However, the priorities of the new cabinet, as far as the investment climate is concerned, seem to stay on its previous course.
"Although there are some radical changes, we would like to assure the international investment community in the continuation of the same policies of the previous government, which is very important", Nikolay Marinov, head of Bulgaria's Foreign Investment Agency, said. "We will simply try to improve certain areas in which they did not accomplish the results they were supposed to. Even the fact that we have a very smooth transition is an indication of good work. There are certain small practical complications but basically it's a very smooth transition because the business likes stability and continuation." |
